When you make a few good trades, the rush of excitement can be intoxicating and make you want more—a lot more. Still, the point of any investment strategy is to increase your chances of success, and trading too much on the Forex market can make even the best plans fail. Forex is a very volatile market, so most investors would do well to follow the advice of Jimmy Rogers, a famous and successful trader who is quoted as saying, "One of the best rules that anyone can learn is to do nothing."
One of the worst things an investor can do is let fear or greed control the decisions they make. When investors are afraid, they close their positions too soon or stop opening new ones altogether. Fear makes it hard to make money, but greed makes it possible to lose a lot of money. Fear makes investors keep a position longer than they should or spread themselves too thin in order to make more money. The market will always go in the wrong direction, and an investor can lose everything when that happens.
Risk Management
There is risk whenever an investor opens a position. Even the best investors are only right some of the time, while the market is always right. A stop/loss order should be attached to each and every position. Stop orders will limit the investor's risk and keep them from staying in a losing trend for too long. Also, once the order is set up and followed, there is no reason to trade unless the stop is hit. This will help reduce the tendency to trade too much.
Stops can be hit often in the beginning, especially for investors who are new to the Forex market. Now, an investor wants the stop to work and limit their loss, but it's important that it doesn't go off too soon or they'll miss out on opportunities to make money. A good investment strategy may take some time to "dial in," so don't be surprised if your stops are initially set too close to the opening price and go off too soon.
In the beginning, it is very likely that a trading account will have a negative balance. But with time and better stop-loss placement, a good investment strategy will start to win out and make money. Beginner investors often try to "make up for" a loss by investing right away. This is one of the worst things they can do. But if your stops aren't set right, this extra investment may be nothing more than a chance to lose even more money.
No Forex investment strategy will work every time because the market is too big and changes too quickly for anyone to be able to predict it perfectly. Investing too often in the Forex, on the other hand, is almost always a recipe for disaster. Instead, you should be patient, set effective stops, and test your strategy over and over again.
