1. Forex Investing is Not Gambling!
Every industry has its unwritten rules; amateurs can't beat the professionals. In the rapidly changing trading market, you must ensure you are not just a casual gambler entering the international forex market with a gambling mindset, as it is a major taboo in investing.
Do not be without a plan. Investors should have a clear position, understanding when to go higher or lower. Investing in forex should not rely solely on intuition or luck; one must acknowledge the reasons behind market fluctuations and seriously analyze the fundamental and technical factors behind currency exchange rate movements.
The market always follows certain patterns, it's not chaotic, and investment in forex cannot rely solely on guesses or luck. Without changing a gambling mindset, it will eventually lead to losing everything.
2. Do Not Blindly Chase Round Numbers
In forex trading, investors sometimes go astray by singularly chasing round numbers. Some investors, after establishing a position, set a profit target for themselves, such as earning $300 or 50 points, and then wait tirelessly for this profit goal to be achieved, refusing to close their positions until it is reached.
Risk management is about preventing total loss. Just as eggs can hatch chickens and money can generate more money, to maintain productivity of your money, you must diversify risks like you would protect eggs.
3. There Are No Perpetual Winners in the Currency Market
In the risky forex market, there are neither always victorious generals nor always defeated soldiers. The key is adapting your strategy flexibly with the changes in the forex market conditions.
Losses are a normal part of trading; they are merely the cost that must be paid for potential profits, the normal cost of finding profitable opportunities. Every profit comes at a cost! Losses don't mean you were wrong, they simply mean your cost of profit has increased.
Do not enter or exit the market recklessly. We are investors, not brokers. Do not forgo setting stop-loss orders, or hold onto hope beyond your stop-loss level, unwilling to exit the market. The market is ultimately unpredictable, and its uncertainty always keeps investors on edge, hesitant to enter or exit, and indecisive about stop-loss, which despite good capital management, leads to a lack of confidence in trading, resulting in a consistently poor trading mentality and preventing rational investment decisions and thus missing many good investment and trading opportunities.
4. Avoid Greed and Fear
The forex market is a high-risk, high-reward market. Engaging in forex trading, especially margin trading, the key is to overcome your own greed and fear. Greed and fear are the major obstacles to success for forex investors. Only by overcoming these psychological weaknesses in trading can investors defeat themselves and thus make profits. In the forex market, some investors, after making profits, become overconfident and, driven by greed, set even higher or lower targets, becoming blindly optimistic.
It's natural for investors to want to make profits, but being too greedy can lead to failure. Failures are often due to excessive greed, turning a sure profit into a loss because of endless desires.
Greed and fear are normal emotional reactions; they are not inherently wrong. The mistake is experiencing these emotions at the most inappropriate times, but in the forex market, investors often want to earn more after making money and fear losing more after incurring losses. Fighting against greed and fear may be a lifelong endeavor in forex investing.
5. Do Not Blindly Follow Others
In the forex market, the herd mentality of investors can significantly affect exchange rate fluctuations. Driven by this mentality, investors may follow others and buy certain currencies without further analysis simply because they see others buying them.
Once they see others selling a certain currency, they don’t analyze the reasons behind the sell-off and hastily dispose of currencies in their possession that may have good potential for appreciation.
Sometimes, unfavorable rumors may spread in the market, leading to group behavior and mass selling, causing market turmoil, supply-demand imbalance, and a sharp decline in currency value if supply exceeds demand.
To avoid the herd mentality in the market, investors must master the contrarian theory and apply it in practice, fostering the ability to make independent judgments and decisions without blindly following others.
6. Never Rely on Wishful Thinking to Overcome Losses
In the forex market, when some investors incur losses, they often opt for floating or hedging strategies, hoping for a market turnaround to reverse the situation and make a profit, but often it goes against their wishes.
Some investors, after going long (or short) on a currency pair and finding themselves at a loss, often do not cut their losses or close their positions promptly, but let it float, hoping for a market reversal, insisting on turning the profit positive before closing the position. Floating can sometimes be called the number one account killer, more lethal than heavy positions. While most forex investors understand the importance of quickly closing losing positions, they often find it difficult to do so in practice, leading to floating and ultimately, significant losses.
Blindly placing orders leads to losses, despondency, and high tension. Despite knowing the trend has turned, some still hold onto hope, indecisively widening their stop-loss levels, or lacking a concept and plan for stop-loss altogether, always hoping the market will completely reverse at the next resistance point. But the market does not reverse, and the situation only worsens.
Some investors, after going long (or short) on a currency pair and incurring losses, also go short (or long) on the same currency pair, keeping both positions open without offsetting each other, known as hedging. This strategy can make it psychologically easier to accept losses. However, not considering the overall market trend and always hoping for a reversal often leads to increasing losses until being forced to exit the market with heavy losses.
