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Hey hey, what’s up my friend! Today, I’d like to share with you 3 common forex trading mistakes (that cause unnecessary losses and heartache). So pay close attention because if you can avoid making these mistakes, you’ll save yourself a ton of time and money. Sounds good? Let’s go… Trading the wrong timeframeAs a day trader, it’s not important to pay attention to the weekly or monthly timeframe. Why? That’s because those timeframes are so far out that it has no relevance to your trading. Here’s an analogy… Let’s say you want to spy on your hot neighbour who lives beside you. Instead of using a ladder to peep at your neighbour’s house, you take a rocket ship into space to spy on your neighbour. But now you’re so far up in space that you can’t even see the thing that matters (your hot neighbour). (For safety reasons, I must state I've never spied on my neighbours. My wife could be reading my emails.) Likewise… If you’re a day trader who pays attention to the weekly or monthly timeframe, then it’s like taking a rocket ship into space to spy on your neighbour. You see nuts. Now you’re probably wondering: “So, which timeframes should I focus on as a day trader?” Here’s a guideline… For entries, you can enter between the 3 and 15-minute timeframe. For higher timeframe analysis, focus on the 1 to 4-hour timeframe. Ignoring the newsBack in 2011, I remember the non-farm payrolls (NFP) was the most important news event of the month. Why? That’s because the US economy just came out of recession and traders are paying attention to the job numbers. If the numbers are getting better, you can expect a bullish reaction (and vice versa). Fast forward to today, NFP still matters, but there’s a new challenger in town. Can you guess what it is? Consumer price index (CPI). That’s because, after years of money printing, inflation is hotter than my laptop running 12 MT4 at once. So when news release like the consumer price index (CPI) comes out, there’s a huge reaction in the market. This means if you are unaware of the important news that’s coming out, you can easily get stopped out of your trades (sometimes even in seconds). And you wonder to yourself: “WTF just happened?!” Now, if you trade off the higher timeframes like the daily or weekly, then news won’t affect you that much because your stop loss is wide enough to withstand the swings. But if you’re a day trader or short-term trader, you must be aware of major news releases. (Btw, Darek will be conducting a live masterclass, Forex Trading For Income (FTFI), where you'll learn how to generate a consistent income from the Forex markets—even if you have a full-time job or a small starting capital. If you're keen, you can join the waiting list and will be notified when it's ready for enrollment.) Using a strategy that doesn’t workNow, anyone can come up with a trading strategy. After all, you just need an entry, stop loss, target and proper risk management—and your trading strategy is complete. But here’s the thing: Just because you have a trading strategy doesn’t mean it’ll work because it must have an edge in the markets (something you do repeatedly that yields a positive result). Just like how the casino consistently wins over the players because they have an edge over them. And it’s the same for trading! It doesn’t matter whether you’re an options trader, a systems trader, or a forex trader, your trading strategy must have an edge. So, how do you develop a trading strategy that has an edge? Great question! For me, I’d like to see it backed by logic. An example is mean reversion trading. When a market goes crazy in one direction, it often makes a pullback before continuing (like how my kids always come back to me after swearing they’ll never talk to me again.). So as a mean reversion trader, you’ll identify markets which are oversold and then look for a low-risk entry to go long so you can catch the “bounce” up. If you’re interested in learning such a trading strategy, I’ll cover it in more detail in my next email. Cheers, Rayner “mistakes-are-for-learning” Teo |