In many aspects of life we are told to follow our instincts because they know the right thing to do. This is not something you should be doing in forex trading. While it is possible to follow your instincts to a certain point you cannot trade solely on these instincts. There are a few instincts that you should avoid or curb when you are forex trading.
Using Instinct with Forex Trading
There are a lot of traders who feel that the market is going to move in a certain direction. Some of these traders will open a position based on this instinct while others will not. The traders that do not open a position may complete further analysis before they commit to the position. The traders that went with their instinct have a chance of profiting, but also a chance of losing. It has been found that the loss is more likely because you have no entry and exit points. You also have no way of knowing what exactly the market will be doing. It is important that you first complete the necessary analysis before you open a trade position.
Assuming Your Instincts are Right
While it is good to follow your instinct you should know that instincts are not always right. In the forex market there are many times when a trader’s instinct is incorrect. This is mainly due to the fact that the forex market is intangible and not something we are used to. Expert traders generally have more correct instincts because they have been exposed to the forex market for longer. It is important that you not trade on your instinct and that you remember that you could be wrong. This is particularly important if you have had winning trades in the past. Many traders who have winning trade become overconfident and this leads to believing that they are never wrong.
An Increase in Trading Risks
An instinct that many traders think they have is the ability to tell when a trade will continue to make profits. This instinct is often not an instinct, but the emotion greed and this leads to an emotional trade decision. These traders will remove their take profits point because they are sure their instincts are telling them to continue with the trade. More often than not this is greed and the trade loses profits because they made an emotional decision. You should never listen to an instinct that forces you to divert from your trading plan. The plan is in place to limit your losses and control your trading.
The Use of the Demo Account
All traders know that they should use a demo account before they trade live. They also know that any changes to their trading should be tested on the demo account first. What many traders do not know is how long they should test something on a demo account. It is recommended that you test anything on a demo account for at least a month. This amount of time seems to be drastic to many traders, but there is sound reasoning for this. A test over a month allows you to see how the trading aspects work in all conditions you face during the month.
An instinct that many traders have that they should avoid is moving from the demo account too soon. Instincts may tell you that you have tested the strategy enough because it has been proved to work. If the time period is less than a month you should not move to a live account.
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