Let’s Learn from the Others’ Mistakes
In this article, I’d like to outline some of the mistakes that forex or stock traders make, to help you learn from these mistakes, and not to repeat the same mistakes. I think you remember that in one of my recent posts, I mentioned that “The wise learns from the others’ mistakes. The fool learns from his own if he learns at all.”
This is very true in forex trading. If you want to learn from your own mistakes, it can cost you a lot of time and money. But if you learn from those who have already made all the possible mistakes that a forex trader can make, it will save you a lot of time and money. It will shorten your learning journey and you will become a profitable forex trader sooner.
There are two kinds of mistakes that novice traders make. One is the mental and psychological mistakes, and the other one is the technical mistakes.
Mental and Psychological Mistakes:
1. Forex is a get-rich-quick scheme:
This is what many novice traders think. Forex makes money while you don’t need to promote any products or services, make any phone calls, sell anything to the customers and… . This is true, but it doesn’t mean that forex is a get-rich-quick scheme. It can potentially make a lot of money, but you will lose a lot of money if you deal with forex as a get-rich-quick scheme.
2. More trades, more money:
Forex is not like the other businesses that when you make more sales, you make more money. In forex, you have to wait for the market to give you a trade setup, whereas with the other businesses you have to spend more time, money and energy to make more sales to make more money. In forex trading, you have to be patient enough to wait for the trade setups. In the other businesses, you have to work more to make more money.
In forex trading, you have to wait for the market to give you an opportunity. In other businesses, it is you who has to create the opportunities.
3. I can make money through forex trading while I have no income and I need to pay my bills.
You will not make any money through trading if you “have to” make money. I mean you can not make any money through trading when you are already in trouble paying your bills. To become able to make money through trading, you have to have an income that covers your expenses, and so you can focus on learning with peace of mind. If you push yourself to make money through trading, you are hammering to lose your money. When you are in need, you lose your patience and you click on the buy/sell buttons while there is no trade setup.
Forex or stock trading is like hunting. You can not take your rifle and shoot aimlessly to hunt something by chance. You only waste your bullets. You have to look for the prey sometimes for several days. Sometimes you have to walk in the woods or mountains for weeks, or you have to sit in your ambush for days until you can hunt something.
It is the same with trading. You have to wait for a trade setup to form. If you just take a position while there is no setup on the chart, you lose.
When you “have to” make money to pay your bills, you push yourself to take positions while there are no trade setups, because you have to pay your bills on time.
Please read this article very carefully.
4. I am a great teacher, doctor, engineer, mathematician, scientists, …, AND SO I can make money through trading definitely.
Absolutely wrong analogy!
I have seen so many highly educated people who have done nothing but losing money in trading, and also so many non-educated people who succeeded to make money consistently.
The truth is that trading has nothing to do with education. You can make money through trading without any academic education, and with having a normal IQ. The only thing you need is learning some rules and then disciplined to follow those rules. If you do this properly and precisely, you can make money through trading. If not, you lose, no matter how educated you are.
Even many educated people are not disciplined enough to wait for the trade setups. Many of them are so proud of their education, and so they underestimate the forex market and think that the market has to follow what they say and predict. This is wrong. Markets don’t follow anybody. We have to follow the markets.
5. I have to invent and develop my own trading system.
Again, this is the problem of many educated people. They think they are smarter than following the others’ trading systems, and they have to develop their own. They spend a lot of time and money to do it, and will finally give up. There are simple and easy to use, yet strong and effective trading systems that anybody can use to make money. Why should we try to develop a unique trading system?
I have seen so many traders who have been working on their own system for years without any result. They develop a new system every week and modify it every day until the next week that they develop another new system. We are here to trade and make money, not to invent something. Do you agree?
6. The more I learn, the better I will trade, and the more money I will make.
This can be true about the other businesses, but not with forex trading. It is good to learn more, but you should know how to use this knowledge to strengthen your trading system. In many cases, the new things you learn deviate you from the right track and make you try new things that had not been tried before. Learning new things doesn’t mean winning in trading.
Of Course, an experience is good and valuable, and you will become more experienced every day, and so you will make fewer mistakes and your success rate will go up. But learning and trying things can cost you time and money. To make money through forex trading, you don’t have to keep on learning all the time. Just learn the trading basics, and then a trading system, and then master your trading system.
Please read this article very carefully. I have explained about the things you have to learn to start making money.
Technical Mistakes:
1. Trading using the indicators like moving averages.
The only moving average that the markets show reasonable reactions to it, is the Bollinger Middle Band which is a 20 simple moving average. The other moving averages are money suckers. Things you hear like “have a 40 or 100 or 200 or … MA on the chart, and go only long when the price is above it, and only short when the price is below it, is the most stupid thing some so-called trading gurus say.
Many of the indicators like Stochastic are money suckers too.
2. More indicators, more confirmation, and so a stronger and more reliable trade setup.
Candlesticks are the best and most real-time indicators that reflect the markets sentiment directly and without any manipulation. They will be stronger when Bollinger Bands are added to them. If you like to have more confirmation, you can use MACD. You don’t need anything else if you want to make money. If you want to lose, then add more indicators to the chart and make it too complicated.
3. Short time frames generate more trade setups, and so I can make more money.
Short time frames can generate more trade setups, but how profitable those trade setups are? How many hours do you have to sit at the computer waiting for the short time frames to generate the trade setups you want? How strong and reliable are those trade setups?
