Brian Dolan, Director of Reseach at Gain Capital (FOREX.COM) wrote an article in the March 2007 issue of SFO Magazine titled, "Trading Mistakes.  Avoid Online Forex Pitfalls."  

This is from the vantage point of a long-time employee of a forex brokerage so I've decided to post this information.  I've heard most of the pitfalls before but not from the broker perspective.

1. Overtrading - Why would a forex brokerage discourage overtrading?  According to Brian, Gain Capital look at a trader from a long-term perspective and if traders fail, they lose the potential volume that a successful trader could have generated.  He breaks down overtrading into two forms:
1. Trading too frequently
2. Trading too many positions at once
2. Overleveraging/Under-funding - Overleveraging means that you have entered into a position that is just too large relative to your available margin balance.  Under-funding is not having enough margin to support your position size.  Once again, the discouragement from Forex brokers to be overleveraged or under-funded is from a long-term profit standpoint on their end.  There is no question that these pitfalls will be major reasons for a trader failing.
3. Trading Without Stop Loss Order/Moving Stop Loss Orders - We've all heard this before.  Some of you have mentioned that you use a visual stop loss and others like myself set hard stops.  I've found in the past that a visual stop doesn't equate to that most of the time in my trading.  I was tempted when I first started to trade to just ride it out, a recipe for disaster.
4. Trading Around Data Releases - Moves during data releases can be violent and unpredictable.  Some brokers raise the spread (Oanda) and other broker re-quote (FXCM.)  I've stayed away from trading the news.  I've tried it but unfortunately didn't have a lot of success because of my inability to focus due to having a full-time job. 

Read or add comments about this item.

No. 1 :

I've been trading live for about 5 months now, and I've had to deal with all of these issues but #3. I don't trade the news anymore and I have behavioral and money management rules outlined for myself to avoid making these mistakes again.

Submitted by mickey • 2007-03-14 12:48:22

No. 2 :

Mickey, sounds a like like myself. I abandoned news trading quite some time ago. There are people who are successful doing it but I just don't have the flexibility to be at a computer during economic releases.

Submitted by Rich • 2007-03-14 20:55:58

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