Infomediaku.net | 6 Mistakes in Understanding the Concepts in Trading
Many beginner traders misunderstand important concepts in forex trading. They trade with their own interpretation of some concepts they read or hear without examining it further and make it a habit in their daily trading.
These concepts are related to effectiveness in order to quickly succeed in forex trading, but due to misunderstanding, what happens is the opposite, the way of trading becomes ineffective and often experiences losses.
From the survey results of novice traders, they get these concepts from various websites, seminars, or from more senior traders, and think that everything is true and must be followed.
Related : How Forex Works – Start to Earn Guide
Here are some concepts in forex trading that are often misunderstood:
1. Trading on High Time Frames has A Greater Risk
Generally, novice traders assume that trading on high time frames (most commonly daily) has a greater risk. Because the stop loss distance will be wider than the lower time frame.
In addition, at low time frames, there are more opportunities for entry because they often provide trading signals. In terms of greater risk, you need to understand position sizing.
If you have to set a wider stop loss with a bigger pip, then you should set a lot of sizes accordingly so that the amount of risk in terms of money is the same as what you had planned when you were trading on a lower time frame.
For example, if you previously traded EUR / USD on a 30-minute time frame and your risk was the US $100 per trade for a 25 pip stop loss, now you are trading on a daily time frame with a stop loss of 50 pips. Your risk does not have to be greater than US $100, but your trading lot size is smaller.
If you enter 4 mini lots for a 25 pip stop loss (per pip is US $4, 25 pip risk = US $100), now you are trading with 2 mini lots for a 50 pip stop loss (per US $2 pip, 50 pip risk = US $100).
For the reward level, with a wider stop loss, of course, the take profit level is also greater if the risk/reward ratio you use doesn’t change. Trading signals that rarely appear on high time frames are relative and depend on your trading method and experience.
In general, this is not the case, trading signals on the daily chart have more weight than the 30 minute or 15-minute charts. Please note that the signals on the chart with a lower time frame (eg 30 minutes, 15 minutes, etc.) are less reliable than daily because there is a lot of ‘noise’ in them.
The daily chart eliminates these noises and the signal image displayed is more accurate. Maybe you will be more extravagant by going in and out of the market at a low time frame.
Trading on the daily chart prevents you from over-trading, over-analyzing and addiction to trading which can be fatal. Trading signals signal entry, and of course you want a high probability of profit.
Trading signals on the daily chart are rarer, but the probability of profit is greater.
2. You Must Always Let Your Profit Increase
You will often read or hear the phrase ‘ cut your losers short and let your winners run which frequently appears on forex websites and seminars.
What does it really mean and how do you do it? With an idea like that in the phrase, many novice traders don’t do anything at trading positions that are already in a state of profit.
They think that with the correct trading position, market price movements will remain in that direction and usually last a long time before there is a definite sign of reversal.
They believe in the experience of seniors who rush to exit even though the market is still moving according to expectations so that the profit obtained is not maximum.
Market price movements cannot be predicted with precision and accuracy. Such a method is likely 50-50 and is gambling. The expression is general, but logical and objective. To respond to this, at least you have to apply money management by determining a reasonable risk/reward ratio.
In addition, you do not have to simply leave a profitable trading position. You can shift the stop loss level to lock in the profit you have earned, or use the trailing stop facility.
To be safe, at least you move your stop loss to the breakeven level. Securing profit is crucial, especially if the reward level has not been reached.
3. Determine the Risk Per Trade of not More Than 2% of Your Account Balance
The rule of 2% risk’ is commonly known and used by forex traders. If applied rigidly, this rule actually limits traders to changing their trading account balance.
Experienced traders recommend that beginners should not be bound by this risk percentage figure. In terms of the magnitude of the risk, a trader should feel comfortable with the numbers set.
The percentage of numbers is very relative to your account funds, and the amount in units of money is more real and visible (visible) .
For example, a forex trader has a profit of ‘10% ‘from his account balance and it is US $100, while other traders also have a profit of ‘10%’ but the amount is US $10,000.
For beginner traders, it will be easier to see the amount of profit and loss in units of money rather than percentage figures.
Many professional traders recommend that in determining the risk per trade using real units of money because only you know the amount of risk in the most logical units of money according to your plan, trading skills, and financial situation.
Here’s a tips from professionals: you should have enough funds to cover 10 to 20 consecutive losses as the worst-case scenario.
If you are not familiar and experienced, you should avoid compounding techniques or multiplying the lot of size per trade no matter how good the market conditions you predict.
4. Forex Traders often Think of Brokers As Their Enemies
If you are experiencing a loss, they always put bad prejudice on the broker, suspecting that the broker is deceiving you by playing with the width of the spread, using certain techniques to ‘chase’ the stop loss level (stop loss hunter), or installing special software that can access our trading accounts.
Although there may be such forex brokers, of course, there are not many. Boker forex is a promising business, and to obtain permission from a regulatory body that has been recognized by the world.
Forex brokerage entrepreneurs must submit a large amount of security deposit. If they cheat or deceive their clients and these clients report to the regulatory supervisory agency (which will be responded to if the evidence is complete).
It will have an impact on their reputation and business. To be safe, you should choose a broker that has obtained regulations from trusted regulatory bodies such as CFTC and NFA (United States), FSA UK (UK), FSA (European Union), ASIC (Australia).
If you have chosen a broker that you think can be trusted, you should not prejudice the broker.
5. The Release of Economic News is Very Important
With the many releases of economic data and news that flood forex sites every day, of course, there are no traders who just ignore it and think that fundamental data not important.
Traders who purely rely on technical analysis in trading (chartists) consider that all the consequences of the release of economic data and news have been reflected in market price movements.
Generally, they still need to pay attention to the release schedule of several indicators that are considered important by market participants. It’s just that we have to be vigilant when trading based on fundamental data releases.
Experienced traders don’t do that to avoid slippage or price jumps. If they intend to trade during the release of economic data, they usually wait a while after the news release in relatively calm market conditions (not too volatile ).
6. Trading Systems and Strategies are the Most Important Aspects
If we try to do a search about trading methods, strategies, or systems on online sites, we will find lots of promotions from various ready-to-use trading software, robots, or companies that provide signal services.
Rarely does it provide education and detailed exposure about money management and trading psychology, the two things that are actually the most important in trading on the forex market? .
The software makers and trading signal service providers know that many forex traders tend to look for easy and effective trading methods and strategies (holy grail).
In fact, there are 3 main pillars in forex trading that must be considered, namely the trading system, trading psychology, and money management.
The trading system includes methods and strategies, while psychology includes mental aspects of trading.
The three pillars must stand together, otherwise one of them collapses it could destroy your trading.
Actually, there is no holy grail in forex trading, especially those that only rely on trading systems and strategies.
That’s the some concepts in forex trading that are often misunderstood.