Most successful Forex traders know only too well that they owe their success to the fact that they set themselves a strict set of trading rules which they follow to the letter. What most don't realize however is that it is this very same set of rules that can be the focus of the Trader's No 1 mistake.
Successful Forex traders know only too well that their success comes from drawing up a set of trading rules and then sticking to them like glue. What most traders don't realize however is that breaking your own set of trading rules is also the Forex trader's biggest, and most costly, mistake.
Your biggest enemy in foreign exchange trading is emotion and the main reason for drawing up a set of trading rules is to take emotion out of the trading equation and to ensure that you are opening and closing trades based purely on what the numbers are telling you.
Another major problem for many traders is greed. Now none of us like to think of ourselves as being greedy, but this is one of the seven deadly sins which is always lurking close at hand and which has a way of creeping up on us when we're not looking. On many occasions successful traders find themselves with a winning run of trades, earning perhaps $500 or $1,000 a day, and think to themselves that, if they can earn this sort of money day in and day out, surely it must be possible to earn $750 or $1,500 a day. Well, there's only one way to find out and that's to push themselves a little by relaxing their trading rules to open up a few more trades - just this once.
Now they may well be lucky and their earnings might just go up over the next few days, but will it last? Invariably the answer is no and time after time traders in exactly this position find that their short term gains are wiped out and that they rapidly move from being one of the few successful traders to being one of the 80% to 90% of traders who regularly lose money.
It is very easy to allow greed to tempt you away from your own trading rules just this once and sometimes this strategy will prove to be successful. However, you're now beginning to trade on emotion and, like most things in life, once you've done it once it's much easier to do it the second or third time.
Your trading rules are your best friend when it comes to Forex trading and you break them at your peril.
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