Feeling sleepy today, perhaps due to the rainy day outside….Since it is a gloomy weather, i shall explore the darker side of Forex trading; 4 Painful Mistakes in Forex trading. Yes, the topic may sounds too painful to some, however, it does happens to almost 95% of people starting out in Forex trading (including me of cos!).

Without further ado, lets explore the following common painful mistakes in Forex Trading.

1) Traders become long Term Investors

How often have we hear of people saying, that they are still straddling on their losing positions in Forex trading, stocks or other financial instruments, etc? While they are still holding on to their losing positions, they are still hoping that the market will make an U-turn in favor of their direction.

This may happened to a lot of Forex trading, stocks..etc amateurs, who may find it too painful to cut small losses and get out of their losing trades. Why is that so? There are few possibilities; either they have over committed their positions (too large size) or having a large ego to admit that they are wrong. Eventually, they will grow tired of watching the prices going so much against them, that they just leave their position hanging there.

Many amateur Forex traders deny their losses, just like any alcoholics or drug addicts denying their problems.

There seems to be a stark parallel between an alcoholic and a trader whose account is being demolished by losses. They nurse the fantasy of being able to control their Forex trading losses, overly excited when the market goes in favor of their direction by only a few ticks. However, nothing will ever change their self-denial nature, if they never make an effort to admit their problems.

Even in the case that the particular currency or stocks did make an U-turn after many years beyond their expected time-frame. This including the opportunity costs and the interests from the bank may even worth more than the profits make.

2) Cheap become Cheaper

This is a very common mistake which may happen to those who committed it do so by comparing the current price with the 52 weeks high of the currency. Many people using this gauge assume that a fallen Forex price represents a good buy, but the fact that the bear trend is just at the begining. That’s why it pays to analyze the overall picture first.

Deteriorating fundamentals and increased interest rates are all possible reasons for weakening of currency- but they also provide good reasons to suspect that the currency might not increase anytime soon. It is important always to have a critical eyes since a weakening currency might be a false buy signal.

Sometimes, it pays to avoid buying currency that simply look like a bargain. In many instances, there is a strong fundamental reason for a price decline. Just imagine buying Malaysian Ringgit 20 years ago!!!

So do your homework and analyze the currency outlook before investing in it.

3) Picking High & Low

Many started Forex trading without knowing the nature of the market. Unlike stock market, Forex is a very trendy financial instrument and the trend may continues for over a period years, some even decades.

Most Forex traders like to be the first one to pick either the high or the low of the market, and they may even describe to you the thrill and excitement they get from being right. Their feeling of thrill or excitement of being right are equivalent to having sex or flying a plane. However, in the Forex trading arena, it favors more on continuation rather than reversal. To be truly profitable in Forex trading, extra cautious needed to be taken for initiating a reversal trade.

4) Presuming or Predicting

Many amateur Forex traders gambled on hunches and use it to make their trading decisions. Or you may even hear your relatives or friends talking about a currency that they heard will get a bull rush. Even if these things are true, they do not necessarily means that the currency is the “next big thing”, and pick up your mobile phone to call your broker.

Other unfounded tips come from Forex trading “professionals” on the media who often tout a spcific pair of currency as though it’s a must buy. These currency tips often don’t pan out and go straight down after you buy them. Remember, buying on media tips is often found on nothing more than a speculative gambling.

Conclusion
Almost 95% of the painful mistakes you can find in the internet or books are due to the human psychology factor, which i would like to explore together with you in the future.

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