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Forex Trading Secrets - DailyFX.com

Forex Trading Secrets - DailyFX.com

James Stanley, Senior Strategist

DailyFX Forex University: Forex Trading Secrets You Need to Know

Visit DailyFX's beginner section and learn to trade forex;

From a forex trading perspective, our inherent human desire to avoid losing can trigger irrational behavior that amounts to the No. 1 mistake most forex traders make -- especially beginners.

This video covers the dual nature of this mistake, and explains how to turn it around in your favor. Topics include:

• Why traders hang onto losing positions for too long

• Why they close winning positions too quickly

• How successful traders operate

The #1 mistake made by forex traders DailyFX research shows that in many of the most popular forex currency pairs, traders won well over 50% of the time. But despite this success, they still -- on average -- lost money. Why could this be?

Inexperienced forex traders often succumb to their emotions and make this common mistake. Unless they discover the "secret" forex knowledge about loss-avoidance as a behavioral bias, they may let their emotions interfere with their trading decisions.

Cut your losses early; let your profits run When your trade goes against you, close it out. Take the small loss and then try again later, if appropriate. It is better to take a small loss early than a big loss later. Conversely, when a trade is going well, do not be afraid to let it continue working. You may be able to gain more profits.

To do more of what's working and less of what's not may sound simple, but it runs contrary to human nature. We want to be right. We naturally hold on to losses, hoping that "things will turn around" and our trade "will be right". Meanwhile, we take our profitable trades off the table early, because we become afraid of losing profits we've already made.

One simple rule to follow Always seek a bigger reward than the loss you are risking. The risk/reward ratio you use will depend on the type of trade you're making but you should always use a minimum 1:1 ratio. That way, if you are right only half the time, you will at least break even. If you follow this simple rule, you can be right on the direction of only half of your trades and still make money because you will earn more profits on your winning trades than losses on your losing trades.

Learn why you should trade forex;

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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