Unusual developments in the market or trading emotionally instead of strategically can cause trading errors. Consider these tips to stay centered and self-aware. Whether you are an experienced trader or are making your first live trades, focus your concentration on basic trading rules to avoid the five most common pitfalls of gold forex trading:
1. Override Your Emotional Response
Whether you win or lose big on a trade, it’s only natural to respond emotionally. Successful traders learn to override the emotional response and continue to follow their trading plan. Use charts and fundamental research to guide your trading, not excitement or greed:
- Overconfidence can lead you to extending or increasing trade size. Lack of confidence can result in walking away from the big profits you’re after. Either way, emotions and gold forex trading can be a dangerous combination.
- Plan your strategy before making gold forex trades. Stick with it. Respond rationally if moving forces go against the trade.
Overriding your natural emotional response takes discipline, focus, and training. Start by opening a free demo account. Practice executing and managing trades completely risk-free. Once you are comfortable, put your strategy to the test with a live trading account.
2. Develop a Strategy – and Stick With It
Gold forex trading without a plan is risky. Resist the temptation to trade gold forex on your “gut feeling” about the price of gold in relation to the US dollar. Develop a clear risk management plan and follow it.
Educate yourself as much as possible, but also beware that studying the gold market does not automatically translate to deep understanding of it. Learn by doing. Make mistakes, grow your skills, and hone your strategy with a demo account. In doing so, you gain the experience about where to enter the trade, where to exit, or where to take profits:
- Practice the use of stop-loss orders. Stop-loss orders are one of the best ways to mitigate trading losses and maximize gains.
- You can’t predict the future. Use stops as part of your gold forex trading risk management plan.
- Risk management is the key to your success as a gold forex trader.
There are a variety of stop-loss techniques. The most commonly used is the static stop. Once placed, the static stop-loss does not change unless the trader moves it.
3. Educate Yourself
Acquiring gold forex trading skills is not an overnight process. People from all walks of life can and do learn gold forex trading to achieve financial success. However, few traders do so without making mistakes, including:
- Cutting winners, running losers: This most common error occurs when traders hold onto losing positions. They hope the losing trade will reverse itself. Learning to limit losses is essential to the gold forex trader’s knowledge base. Entering a stop-loss order with every trade is risk-aware. Similarly, many traders – especially undercapitalized ones – capture profits on winning trades too quickly, preventing the opportunity for a big win.
- Moving stop-loss:Inexperienced traders sometimes decide to move the original stop loss. This decision is almost as risky as trading without the stop at all. The new trader opens himself or herself to major losses that can happen in an instant. Never move the stop-loss in the direction of an already losing position, and don’t add capital to the losing trade to “average down.”
Start by learning everything you can about the relationship between gold and the US Dollar.
- Learn everything you can about the pair’s historical trading patterns.
- Study charts and read fundamental research.
- Open a demo account and practice entering and closing trades.
Most gold forex traders look forward to learning more about the market each day. They understand that technical and fundamental knowledge go hand-in-hand with trading success, and relish every opportunity to educate themselves further.
4. Invest Sufficient Trading Capital
Most new traders are attracted to gold forex trading because they want to make money. They want a second source of income or hope to quit a job they don’t enjoy. Unfortunately, without enough invested at the start, it’s difficult to achieve a desired income stream.
Few new traders take the time to foster and grow their gold forex trading account. They are likely to risk too much money in the trading account because of a hunch. By taking this approach, traders are likely to lose everything.
Write a risk management plan first. Let’s say your risk management plan prevents you from placing more than one percent of capital in a single trade. If you start with $1,000, this means you can risk just $10 per trade. This risk limit also limits your trade size.
If you’re successful – and very patient – you will average a small net profit per day. Most traders want to earn money faster. They make the mistake of placing more money at risk to achieve bigger, faster profits.
Without enough capital invested, your trading style is limited. A small capital base almost automatically limits you to active day trading. Day traders in gold forex typically close out positions to avoid overnight risk. The best trades won’t be allowed to run.
Experienced traders recommend saving money before opening a live forex account. Before opening the live account, take advantage of a free demo account. Adequately fund your account once you have $5,000 or more to invest.
5. Don’t Be Stubborn
The most successful gold forex traders tend to be disciplined and humble people. They know the importance of creating a risk management plan and sticking to it. Any successful gold forex trader will recommend that you take the time to acquaint yourself with the market by opening a free demo account.
Stubbornness is not conducive to trading success. Stubborn traders make mistakes, such as:
- Overtrading: Trading too often or trading multiple positions at the same time can occur when the trader stubbornly decides that his or her prediction will come to pass. Increased market risk consumes account equity and reduces your ability to recover from markets that go against you.
- Overleveraging: Proper use of leverage allows you to make more money by borrowing it from the broker firm, but trading too much in relation to the amount of capital invested is risky. Your account can be liquidated if there isn’t enough capital to cover margin.
- Refusing to adjust to market conditions: Stay flexible after evaluating market trends and trading ranges. Use technical analysis to determine if a major trend change is underway. Trade with the trend.
Open a demo account to prepare for live gold forex trading. Use the trading tools to plan trades but don’t let stubbornness stand in the way of making profits. Follow the news to learn what’s happening in the world. Some data, such as trade balance reports, affect gold forex trading. The announcement of a major crisis or event is likely to trigger volatility in the gold forex market.
Gold forex traders must acquire new skills for success. It is unrealistic to expect to achieve your long-term goals with a single major trade. The key to long-term success in gold forex is the ability to amass small gains which add up to impressive profits over time. A realistic trading plan, evaluation of average trading ranges, and recent reactions of the market are necessary.
Perfectionism isn’t required to achieve financial profits in gold forex trading. When the market reaches 75 to 85 percent of the anticipated scenario, take some profits. Allow the market to guide your next steps.
The best way to acquire skills and confidence as a gold forex trader is to open a free demo account now. Once you are comfortable and ready to put your training to the test on the real market, open a live trading account and get started.
Open your demo or live account today!