THREE WORST CHART READING MISTAKES BEGINNERS MAKE
To err is human. Mistakes are an indispensable part of life. Anyone who has achieved anything has erred before achieving it, but that does not mean that you should not avoid making mistakes. The truth is that just like how we have patterns in price action chart, there are some patterns in making mistakes too, identifying and understanding which will help to avoid them. These common mistakes arise from three causes, which can be broadly categorized into 3: vagueness, impatience, and greed.
These are the three attributes that force beginners in any field commit mistakes. Forex trading is no exception. Let us examine these attributes:
In the forex industry, beginners’ understanding of the market and price movement is only superficial. They only have a vague idea of how the market works. And there are many trading strategies to choose from. Not just the core trading strategy, there are several other minor decisions that they should take to execute their plan and win at the market. All these get affected by the vagueness. Let’s take the example of choosing the time frames.
Choosing Small Time Frames - A big mistake that most beginners make is to assume that hourly charts are better than daily charts. Beginners work on hourly charts hoping to identify the price movements quickly and thus capitalize on that.
For intra-day trading, charts of lower time frame are more suitable. These may vary from 15-minute time frame to 1-hour time frame, but the forex market changes regularly and repeatedly. In other words, it ebbs and flows, which means it does not stop changing, and that change is constant. Hence, those who use lower time frames, such as a 30-minute chart, will have to check the chart every half an hour and execute trades accordingly. In other words, the opportunity to interact with market is more when a lower time frame is used. This would mean higher number of trades executed, which in turn leads to a higher brokerage.
Beginners rarely understand the amount of patience that is required to excel at forex trading. The market is open 24 hours, but that does not mean that you can just dash in anytime, place some trades, exit in a jiffy, and expect to make profits out of that. That brings us to the second common mistake.
Choosing to Exit Early - This is another issue that is commonly found among beginners. Beginners are under the wrong assumption that chart reading should be done quite fast and exit made at the earliest. As the market is very complex, they prefer to enter for a limited amount of time, take the trade, and exit at the earliest. This is because of the fear that something may go wrong if they remain in the market for longer period of time. This fear is partly because they do not realize the importance of identifying the trend and following it. Therefore, while doing a chart reading, they are not ready to wait for longer time to observe and analyse price movements, and open a position and exit at the safest point. This often puts them in a disadvantageous position, which will either lose their money or lose the profit that they might have gained if they were patient enough.
Many beginners start forex trading with the desire to make huge money in less amount of time. Therefore, they are always on the lookout for easy ways to make huge profits. They try to attempt this through many means and end up committing mistakes. One of them is choosing a lot size for trading.
Choosing Bigger Lot Size
This is a mistake that often goes overlooked. Beginners, in their desire to make a quick dime, think that a bigger lot size will yield them bigger profit. What they seldom understand is how the lot size risk is dependent on the volatility of the market as well as the time frame that is chosen for analysis. Beginners lack this comprehensive understanding as to how things are related to each other, and thus end up choosing the wrong lot size.
Also, when you choose to take a bigger lot, beginners will not have enough patience to hold their position in light of a reversal price movement. They may panic and exit immediately which might incur them a huge loss. Hence, they will be forced to keep a stop loss very near to the current price, which again affects their income.
The bottom line is, even though to err is human, it does not mean that you must err to become human! While it is inevitable to make a beginners’ journey error-free, it surely is possible to avoid the common mistakes that they usually commit and thus expedite the progress to an expert trader.