Top 10 things that can go wrong in forex trading.
We have discussed the issue of having a forex trading plan .However if you are going to last long in the forex market; we have to think of the things that could possibly go wrong when trading .Even with the best laid out trading plan, some crazy things to happen when one is trading.
As part of your trading plan it is important to think of all the things that can go wrong in a trade. However most of them will come through experience and you can’t buy that. All you can do is planning to survive them.
- You can lose your money while trading.
I know most traders don’t want to hear this but yes it does happen and it will happen. The reason why most started trading was so that they could make a ton of money. However, the first thing to understand is that you should never think about trading if you are not prepared to lose. One or two loses here will set you up for one big gain but before the loses come, please think of the possibility of lose, accept it and embrace it.
I personally lost two $5k accounts before I could even make three winning trades in a row. You can imagine that my girl friend was not happy.
- No Trending Market
You went to eBay and moneytec and discussed a very great trending system but somehow markets aren’t trending this week and you look at the past month and you see only a ranging market. You remember you had back tested it for 3 months and it was doing great in your demo account but somehow, the pairs are locked in a 200 pip range. You had better believe that ranging markets do occur in any time frame and you should be prepared for it. You can either stick to your time frame or learn to identify ranges and choose another time frame.
- Rates are cut
I started trading the Japanese Yen and in 2000 the Bank of Japan loved playing cat and mouse with the interest rates. One moment the market would be trending one way and the next rates have been changed or the BOJ has added more cash in the system and the market does a 200 pip U Turn. You had better believe that it will happen in your trading life.
- High Commissions
Yes , your broker has promised you that their pip spread will never change. Oh yes it does and at always the time you don’t expect. I once had a 3 pip spread move to 15 pips when I had the trade. Then back to 3 pips when I was exiting with frustration. No matter what your broker tells you, he will screw you one day. You had better be prepared to deal with it. The newest method is not to increase the pip spread but to fill you at a price that you really had no intention of trading, they of course they blame a market gap.
- Your Cat pulls the Cable of the wall
it has happened to me. There you are very busy following your trade and all of a sudden your screen is blank and out jumps the cat that thought something was not right. Now if you think this will never happen to you, you had better get another profession. And by the way it only happens when you have a trade on.
- Your Computer crashes
A variation of this is that your trading software crashes. Do not be shocked when your computer crashes on the day that you were very confident of a trade and instead of trading 1 lot you traded 5. Your computer will crash and then on CNBC, you will here the market crashed with it. I don’t really know the solution to this since I don’t work for Apple or Microsoft other than follow money management and place a stop. It will happen though. For those who have not paid their electricity bills, the electricity will be shut off at this appropriate time.
- The market in New York Shuts down.
Just as every thing looks rosy for you, the brokers building and all the US based brokers lose power .Since your broker is in the USA, you cannot place trades. Meanwhile, traders and brokers in Europe and Japan are busy letting lose on the dollar and all you can do is watch in pain. For those who have been trading long enough you know this has happened. I still don’t know the solution to that other than money management.
- Personal Issues
Somehow your wife or husband picks a fight with you when you are trading. One of the questions asked of course is “why are you gambling away the milk money?” Your kids do have a knack of having problems while you are trading don’t they? Having personal issues while you are trading will make you lose focus on the trade. Do what I did. I bought a guard dog that only listens to me and bites everyone else when I’m trading.
- Market Volatility
All of a sudden the market gaps in the opposite direction to your trade. You place an exit order and it gaps back from whence it came. As soon as that happens you place another trade and again it goes against you in a big way and you exit and it goes right back. I once lost 300 pips in 7 minutes of activity. It was not a happy day and it will happen to you too.
- The End of The World
I know many don’t think it will come when you are trading. But the laws of probability say it will happen one day when some trader, probably you, is busy trading. As you place that 100 pip winner, Jesus, Mohammed and all the prophets come down in a chariot or something. Of course I would not advice you to trade on that day and I really don’t think any wise broker will take your orders.
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