Successful forex traders know what, when, and how to trade currency pairs. Their experience lets them apply trading tricks that may seem abnormal to many forex traders.
The opposite is true for beginner traders. They easily blow accounts by making mistakes that you can easily avoid by reading and understanding this article.
Whether you are a beginner or intermediate forex trader, reading this article will equip you with tricks to enjoy reliable, and profitable trading. Find out more below.
1. You Overload Your Screen with Technical Indicators
New research shows that traders who track more than five technical indicators at once make little profit. And lose their investments more often. The most typical technical indicators are:
- Relative strength index.
- Moving average convergence divergence.
- Bollinger bands.
- Average directional index.
- Stochastic oscillator.
- Fibonacci retracement.
- Ichimoku Kinko Hyo.
Let us say you track all of the seven indicators at once. There is more than an 83.37% possibility that you will get overwhelmed at some point. Why?
First, you will need to calculate them. Calculating most of the indicators is hectic and consumes a lot of time. Instead of spending 80% of your time calculating technical indicators, it would be best to identify 3 of the best combination.
Then, actively apply them to trading instead of spending hours tracking and analyzing more technical indicators.
For instance, you could combine the Relative Strength Index, Moving Average Divergence, and Bollinger Bands to monitor the market successfully. Does this mean a single technical indicator is ineffective?
2. You Rely on a Single Technical Indicator
All technical indicators are important. They let you identify your currency pair’s trend, momentum, volume, and volatility. For example, when are the prices likely to drop so that you can buy more before the trend reversal?
Yes, you can get all of the four analyses from most technical indicators’ combinations. However, you cannot analyze the four corners of a market using a single technical indicator.
For example, the RSI tells you the market weaknesses and strengths depending on the most recent price changes. You can realize market overbuying and overselling.
However, during sudden and excessive price changes, such as a tremendous rise in your prices, the technical indicator gives you false signals.
Another example is using Bollinger bands. The technical indicators help you determine the market volatility. However, as the market starts trending, they will give you false signals.
That is why you could over-risk your account’s health by over-depending on one technical indicator.
3. You Are Not Using Technical Indicators
The biggest mistake you can ever make as a forex trader is to stop using technical indicators. There could be two reasons you don’t use technical indicators.
First, you don’t understand the power of technical indicators. That is why you should seek the background of forex analysis. And relate it to fundamental and sentiment analysis.
Briefly, fundamental analysis requires you to have a solid understanding of what factors make certain currencies more volatile than others. Most of these factors can be grouped into economic, political, and social.
Understanding what affects your trading environment is the quickest path to expert trading. And critical in making sound, timely investment decisions.
Another analysis that many traders fail to understand or ignore is sentiment analysis. Here, you monitor other traders’ opinions about the market flow and relate to your trading. This is important because actions of many traders’ actions influence market direction.
Nevertheless, it would be best not to confuse sentiment analysis with copy trading, mirror trading, or social trading. In the three trading types, you (don’t analyze but) take exact trades of another trader and apply them to your account.
The second reason for ignoring technical analysis is the advancement in trading automation. Apart from the ease of copy trades, you can let machines decide what and when to buy or sell. That is not wrong. But it has flaws too.
It would help if you combined technical, fundamental, and sentiment analyses to avoid the most frequent losses.
When applying technical analysis, it would be helpful not to rely on one or spend too much time tracking several technical indicators at the expense of trading.