Two Common Trading Pitfalls and How to Avoid Them

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Two Common Trading Pitfalls and How to Avoid Them

I did not take a trade last Friday while watching the EUR/USD given that nothing set up to my liking. But it was one of those days that could have turned out a lot worse if I was impatient and forced matters by taking trades that weren’t actually there. So I felt compelled to write about the subject of a couple major trading hazards and how pivotal it truly is to avoid them.

1. Not accounting for momentum

Like I posted in my previous article, not taking into account momentum is an easy way to get oneself into a trade that isn’t as actually robust of a set-up as it actually appears. “Momentum” basically means that more volume is entering the market and usually driving it in a particular direction. This often occurs during news releases when currency markets often adjust very rapidly in response to the news. As always, reference an economic calendar before you begin trading and understand when economic accouncements are going to be released. Nevertheless, these movements are often unexpected as well. Sometimes a bank makes a big transaction that drives up volume in the market.

In my case, since I trade using support and resistance levels in the market while taking into account price action, trend, and the somewhat obscure notion of “momentum,” one must also be mindful of increasing volume around these price levels. I’ll give an example from Friday’s trading:

In the above image, two cases are evident. Around 2:30, price made a move up to the daily pivot level on a strong bullish candle (at least relative to the surrounding candles). I would not have gotten into a trade even on a re-touch of the pivot level for the simple fact that the up-move was relatively strong.

So how do you tell when a market is gaining momentum or there’s an influx in volume? It’s usually the simple task of being able to tell that a candle is larger than the ones that preceded it in its recent price history. It doesn’t even necessarily need to be a candle denoting that the market is going in a particular direction. Candles with small bodies and large wicks are often just as demonstrative of the phenomenon. Even if these large wicks demonstrate a rejection of a price level that you might have interest in trading. The extra volume and volatility entering the market may very well have the capability of wiping out that price level altogether. For a reference, consider the two bearish/red candles in the image below:

Pivot was being tested and was rejected twice. Normally I’d take that as a good signal. But given how much more volume had recently entered the market at this point, I felt most comfortable sitting out that particular trade. Even if you’re getting the wicks there’s still a good chance that the market is inclined to break below that level. And this trade would not have worked out. Of course, it can if you’re fortunate enough to get an expiry on the green candle that held above the pivot. But the set-up is simply too much of a 50-50 gamble for me overall, so I passed on the opportunity.

When volume builds in a market, price levels simply do not hold as well. So if you can transparently observe that a price movement is gaining steam – market moving faster, candles getting larger – I’d advise that you’re probably best off staying out of the market at that particular time.

2. Trading just the price level

When I say that my strategy is fundamentally based on support and resistance, that of course never means simply trade a price level of interest expecting it to work. Because other things like price action and trend are very important subsidiary factors. The actual price action – that is, analysis of the candlesticks that represent historical price movement – is the one leading indicator that you have. Moreover, trading according to the trend – the market’s bias for one direction or the other – has been perhaps the most effective basic trading strategy ever devised. Also accounting for increases in volume/momentum, buyer/seller dynamics, this kind of stuff, also weighs in heavily.

Consider once again the first image in this post (also posted below):

The big bullish/green candle approaching the pivot level toward the very right-hand side of the image exemplifies both of the main talking points of this article. There was the previous resistance created from the move up to pivot at 2:30AM EST. The pivot level and previous price history I guess you could say technically supported a trade here. But if you simply get into the trade on the touch of the level, without consideration to any of the aforementioned factors, you can see how badly the trade would’ve panned out. Never should one trade just the price level. Factors like price action, trend, volume, momentum, etc. must also weigh in in helping make one’s decision.

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This next image represented trading from later on in the day:

As can be plainly observed. Trading just the pivot level in this case would have turned into some very poor trades, as price was meandering up and below the level. And in several cases, price blew through it with above-average influxes of volume either on the candle that created the breach or the one directly before it.

Then, of course, you get the ginormous candles from massive financial transactions that absolutely dwarf the ones comprising the earlier market hours. It makes the previous market you were trading seem very non-descript by comparison. These are the times when you simply wait for the market to die down a bit and wait for some return to homeostasis.

Obviously, when you’re getting candles like these, you never ever want to try to bet on the market flipping course at some price level marked off on the chart. You merely wait it out and go from there.

For those who frequent my blog, how I trade seems very repetitive in nature. And that’s often the way it should be. That doesn’t mean you can’t adapt, learn, and integrate new things into your craft, as it’s never good to become intellectually calcified and doggedly approach something from the same stance ad infinitum. But doing the same thing over and over again and doing it well and effectively does help to breed success. Same thing for a surgeon repeating the same surgery thousands of times or a baseball pitcher using the same mechanics in his delivery. Repetition helps in becoming very good at something. And the neat thing about trading in a way is that no two market situations are naturally ever the same. But if you’re applying an effective strategy toward the markets in all circumstances, the fact that the market is so inherently dynamic should not alter long-term success.

Common Forex Trading Pitfalls

Forex trading is full of success stories. Just search the Internet or follow the trading community on the leading social media websites. Everyone is a winner! Real statistics though tell just the opposite. But what are the Forex pitfalls that make Forex trading so difficult?

It all starts with the approach to trading. People focus on how much they’ll make.

Instead, the focus should be on how to manage the risk. How much they’ll stand to lose.

Focusing on losses or embracing losses is part of a sound money management system. A system that focuses on setting the risk before concentrating on the reward.

When doing that, traders become selective. They’ll skip more trades than initially thought.

Moreover, they’ll sit on the sidelines more often. They will have less margin stuck in the market. Hence, they’ll pay fewer commissions and other fees to the Forex broker.

One of the significant Forex pitfalls comes from the trading attitude. And, the from the strategy too.

If a trader has a scalping strategy based on the economic news release, that’s fine. But, if he/she is not around when the news is released, then the strategy won’t work. As simple as that.

If a trader can’t cope with losses, the tendency to overtrade appears. Instead of managing the risk, overtrading leads to even more losses. Before you know it, the account vanishes.

In this article we’ll cover:

  • Forex pitfalls for a novice trader
  • Forex mistakes to avoid when trading for a living
  • Forex tips when swing trading
  • how to trade successfully on the bigger timeframes
  • successful traders’ Forex habits
  • how to profit from the price action in different London sessions
  • what mistakes to avoid when scalping Forex

Every business has its pitfalls. Let’s see Forex trading ones!

A Beginner’s Forex Pitfalls

People come to Forex trading to make a profit. Or, money.

More precisely, extra money to complement the regular income stream. What’s wrong to want to earn some more?

Forex trading grew in popularity together with the Internet. The online environment made it possible for anyone to take part in the most exciting game of them all. The money game!

Problem is, this is not a game. However, Forex brokers advertise Forex trading as so easy, even the sales lady in the grocery store makes a couple of extra thousand bucks per week.

Makes one wonder why she still works at the grocery store? But never mind that. For now.

A major pitfall for beginners is to understand that this is not a game. Trading is serious business capable of sucking every piece of energy from a person. And, together with it, his/her money too.

Numbers don’t lie. Most traders (almost everyone) lose their first deposit. Bang!

When beginner retail traders realize that, unfortunately, it is too late. The first deposit is long gone.

Some came back to Forex trading after a while. With a trading plan, they last more than the first time. However, chances are still against the retail trader.

It is only normal. Before talking about Forex trading strategies and the pitfalls to succeed, one needs to understand the market participants.

The neighbor or the chatty online friend is not your enemy. In fact, retail trading size in Forex trading is so small we can ignore it. Only about six percent of the daily trading volume belongs to retail traders.

Instead, central and commercial banks, investment houses, quant firms, even brokers and liquidity providers, have a say in Forex trading.

With that in mind, the beginner retail trader avoided a major Forex pitfall. He/she knows the enemy.

Loosing and Winning When Starting Forex Trading

When starting Forex, one of the significant Forex pitfalls comes from how to handle the pressure. That is the pressure of winning and losing.

Like it or not, winning is more dangerous than losing. Here’s why.

A winning streak makes a trader think great about his/her capabilities. Therefore, complacency replaces heightened attention. As a result, the road to a losing streak just started.

When loosing, the trader starts paying attention to details. Becomes innovative, proactive, and gains an edge over the market.

This doesn’t mean that is better to lose than to win. No.

It only means that Forex pitfalls from handling a winning streak are far more significant. Hence, when in a winning streak, the longer it takes, the more the trader needs to reduce the trading volume.

As such, the trading account is protected from the inevitable loss.

Scalping Forex Trading – Mistakes to Avoid

Retail Forex traders aren’t aware of different types of trading style when they first come to the trading table. As such, they’ll settle for small profits and break any possible money management rule, such as:

  • don’t place a stop loss
  • don’t use proper risk-reward ratios
  • add to a losing trade
  • don’t cut the loss short
  • overtrade an account
  • risking more than one or two percent on any given trade

All these are mistakes to avoid especially when scalping. Forex pitfalls when scalping relate to the trading time too.

Scalping the Forex market is difficult enough for pro traders too, not only for beginners. The problems come from:

  • too many commissions paid
  • the economic news makes the prices move on nothing at all
  • any speech, interview, source, can suddenly turn the market

Most importantly, scalpers rarely have a proper risk-reward ratio. If the trading setup comes from the one-minute chart, the stop loss and the take profit levels become irrelevant.

The reason comes from the way the brokers execute trades nowadays. ECN (Electronic Communication Network) or STP (Straight Through Protocol) promise to close a trade when there is a market.

However, when the market moves too fast, the execution may differ by a couple or a few pips. Just enough to screw a risk-reward ratio when scalping on short and very-short-term timeframes.

Understanding the economic calendar is one of the most common Forex pitfalls to address. People fail to realize that the market won’t move all the time.

During the NFP (Non-Farm Payrolls) week, for instance, the chances are that the market will range the entire week. Traders will overtrade, and by the time the NFP comes, they’re out.

Pitfalls When Trading for a Living

After trading for a while and having relative success, the retail trader starts thinking of making this a real job. Why not trading for a living?

Have a small room somewhere in the attic or basement, align a few computers and monitors, have a stable Internet connection and Forex trading can start. What can go wrong?

Many things. First, think of the time zone you live in and correlate it with the Forex trading sessions.

The most active Forex trading sessions are the London and the New York ones. Even starting with the second part of the New York session, ranges begin to settle in.

The Asian session is mostly lethargic. The last years (make this the last many years) see the prices consolidate in minimal ranges during the Asian session.

Hence, if you live in a time zone that makes it difficult trading in the London session, and part of the New York one, think twice. One answer would be to trade with a robot. Or, algorithmic trading.

However, algorithmic trading has its Forex pitfalls too. No one wants to wake up and find out the markets pulled a flash crash like:

  • when the SNB (Swiss National Bank) dropped the EURCHF peg from 1.20
  • the GBP (Great Britain Pound) fell several hundred pips in less than five minutes during a terrible Asian session

Robots don’t handle that kind of stuff easy. Ask survivors of the two events, if any.

Facing Range Markets in Forex Trading

Second in line after the time zone is how traders face range conditions. Like it or not, the currency market mostly ranges than trends.

When trading for a living, the focus suddenly shifts. It shifts from a short to very short-term oriented approach, to a medium one. Or even longer.

A medium-term Forex trading strategy is called swing trading. When traders keep positions open from a few hours to a few days or even weeks, that’s swing trading.

Essential Forex pitfalls of swing trading come from range markets. A swing trader lets the profits run.

Or, trades with a different time horizon. Yet, if the market doesn’t move, or move in a range, a problem arises.

The problem comes from the need to do something. Only because the market is open, traders feel the need to open a trade.

In other words, they “marry” with one direction. And, if they’re wrong, when the market starts trending in the opposite direction, usually it is too late.

This is EURUSD 2020 price action. About two-hundred pips range for the first four months of the year.

When trading for a living, the pressure mounts to make it every month. Month in, month out, the bills keep pouring.

If the market ranges and the trading strategy is swing trading or even investing, it takes time. This leads to another critical Forex pitfalls traders face: funds.

Available Funds in Forex Trading

Third in a row of major Forex pitfalls, the funds to trade. After all, it comes down to money.

This one is a major hurdle in Forex trading. The available funds in the Forex trading account go beyond just that.

Human nature plays tricks on us. As such, even when wrong, traders still believe the market will turn.

Therefore, they’ll ignore the basic money management rule of cutting the loss. Instead, they’ll drop the stop loss.

Part of important Forex failures to avoid, lack of funds in a trading account leads to irrational decisions. But lack of funds doesn’t come always as a result of not enough funds deposited.

Instead, it comes most of the times as a result of overtrading.

Overtrading means are taking multiple positions or one excessive position so that the smallest market move will squeeze the heck out of the trading account. Effectively, traders will receive a margin call, and after that, the market will turn to the desired direction.

Naturally, the trader will blame the market for that “nasty swing.” Or, the broker, for widening the spreads.

However, the only one responsible for such a terrible Forex trading situation is the trader himself/herself.

A trading account can survive in any environment. As long as there is enough available margin to sustain a swing that doesn’t reach the stop loss, apparently.

Therefore, when a trade reaches the stop loss, isn’t necessarily bad news. Traders should embrace it as part of the trading game.

Instead of widening the stop or removing it and praying for the market to turn, traders should use the released margin for another trade. That’s how the wheel spins for a new trade and a new opportunity.

Learn From the Pro Traders – Forex Habits to Remember

By default, a pro trader does that for a living. And, in doing that, there’s no pressure for a daily, weekly or monthly target. Neither in pips nor money.

Instead, a pro trader knows what he/she is against. Forex trading is one of the most daring jobs in the world, so there’s not enough safety to consider.

A pro trader is aware that the market may range more than the norm. Or, it can stay overbought or oversold more than one would resist.

Moreover, such a trader knows that there is always another opportunity. Above all, when trading for a living, the worse thing that can happen is to have pressure on results.

To avoid that, a money management plan coupled with a trading approach will do the trick.

Namely, traders in this category give themselves a year. Twelve months.

To start with, they calculate the average expenses for the family needs for every month. Add to this the kids school, savings, holidays, the little treat, mortgage, and so on, and that is what the trader needs to make over the course of a year.

Why a year, you ask? That’s easy and already answered in this article. Before a decisive move, markets tend to range, and a more extended period is needed.

Hence, a pro trader always has a safety net for the twelve months ahead. Money to live from, and money to trade with.

No pressure. No strings attached. No nothing, but pure, stress-less trading. Guaranteed improved results!

Sitting on Your Hands

We already mentioned that traders feel the need to do something only because the markets are open. Pro traders, or the ones that do that for a living, love to do nothing.

The market takes what it has to take from the novice trader and the beginner one, and that doesn’t even matter in the overall price action. Remember that the size of retail trading in the total trading volume is more than insignificant?

Sitting on your hands do the trick to avoid overtrading. Having no position on the market is a position. A cash position! After all, cash is still king, right?

This article mentioned the NFP and the difficulty in trading the NFP week. All eyes are on the release and any possible clue from the ADP (private payrolls) or other news.

In fact, the market doesn’t give a crap until the NFP comes out. Hence, if pro traders do take a position during the NFP week, the horizon for the take profit isn’t a day or two. But weeks or months ahead.

Hence, the analysis doesn’t come from lower timeframes, but from more significant ones. Daily, weekly or monthly will do the trick.

Pro traders look into details of a release. They won’t settle for the NFP to beat expectations, and therefore to buy the USD.

First, they have a technical scenario. One that comes from multiple timeframes and multiple theories and strategies.

Second, they check revisions to past data. Finally, they look at small details that the average Joe doesn’t even know they exist.

Such details come with data like:

  • labor participation rate
  • employment component in the ISM Non-Manufacturing
  • M&A (Mergers & Acquisitions) potential influence
  • regular option market expiries
  • fixings throughout the trading day, week and month


Forex trading is a challenging task. Unless you do this as a hobby, with penny money and trading cents, Forex trading has its Forex pitfalls.

The challenges to succeed are so significant that the pressure builds up with every trade. Retail traders, above all entities involved in the currency market, have the least chance to survive.

This is statistics, not an invention. But funny enough, human nature plays tricks on us all again.

Mainly because it is so complicated, almost impossible to make it, it represents a daring task. Traders, above all, are courageous people.

Risking something for the sake of gaining more isn’t only in Forex trading. All businesses are bound to bear the same risk.

However, few businesses risk loving everything so fast. This is what makes a stringent task for retail traders to understand Forex trading and the major Forex pitfalls that come with it.


Our goal is to share this passion with others and guide newbies to avoid costly mistakes. Today we want to share all our knowledge and insights, so you can take your trading skills to the next level.

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3 Common Day Trading Pitfalls And How To Avoid Them

Many people shy away from day trading because they don’t think they are experienced enough or consider it too risky.

And while it certainly can be risky, it doesn’t have to be if you have the right system and guidance. I even know newbies who are excelling at it (more on that in a bit).

One of the biggest keys to being a successful day trader is avoiding a few of the common mistakes that cause many to stumble. Today, I’m going to review three of the biggest ones and tell you how to avoid them so you can start down this profitable path on the right foot .

Day Trading Mistake #1: Overtrading

There are a lot of people who wrongly equate day trading with making multiple trades every single day. That’s certainly one way to do it, but it’s typically not the best way.

These people might trade a bunch of different stocks, or perhaps they only trade one stock but they try to move in and out of it multiple times a day.

Trading multiple stocks can be problematic because the more stocks there are to focus on, the less familiar you are with the way any given stock moves.

My trading system revolves around trading a single security — SPY, the ETF that tracks the S&P 500 — every morning.

Well, for starters, I trade options, and SPY’s options are highly liquid. This allows me to move in and out of positions and reduces the chances of getting stuck in a trade if the market moves against me.

Second, trading the same security day in and day out gives me a huge edge. I am intimately familiar with SPY’s chart, key support and resistance levels and the technical patterns that work best for it.

Finally, SPY options have expiration dates on Mondays, Wednesdays and Fridays, and each day has dozens of strike prices to choose from. That’s a luxury most individual stocks don’t offer.

This gives me a chance to cherry-pick what I consider to be the best trade in the marketplace on a daily basis. I then send an alert to my members 30 minutes prior to the market open each day with that trade .

As I mentioned above, some traders attempt to move in and out of a stock multiple times a day. But not with my Trade Of The Day . The idea is to enter a simple “buy to open” order in the morning and then “sell to close” soon after for a profit.

I’ve written before about why mornings are the best time to trade . But, in short, the first hour of trading generally sees the largest moves in the shortest amount of time, which means it also offers the greatest profit opportunities for traders — especially options traders who can take advantage of the incredible leverage options provide.

Now, while I ideally like to enter trades within a few minutes of the market opening, I always preach patience. To be successful at day trading, you must respect the charts and wait for the appropriate pattern to trigger or you risk losses piling up.

This is why I typically issue a follow-up to my Trade Of The Day alert , letting traders know whether the pattern I was looking for formed and what my entry and profit targets are.

If you are going to wade into the day trading waters, I highly recommend you stick to a disciplined system that will help keep you from overtrading .

Day Trading Mistake #2: Getting Greedy

The next mistake I see inexperienced day traders (and experienced ones for that matter) making is getting greedy.

Many people hold on to positions too long only to see gains evaporate. And while a foregone profit is not a loss, it still stings. And if you’re not making profits, then you’re not a successful day trader!

When day trading, it is often best to aim for quick base hits rather than home runs. And the best way to do this is by using support and resistance levels to guide your entries and exits.

For instance, when a stock finds support at a certain level, that is a signal that there is demand for shares at that price point. So, support areas often make good entry points for call options.

Resistance areas, on the other hand, are price points where the stock has stalled and the bears have been able to push shares back down. That means these levels are often ideal spots to take profits.

Of course, if you are buying put options, this is reversed. Resistance areas are often good entry points and support levels are where you should look to take your profits off the table.

I always tell my Trade Of The Day members, “Your exits are your exits.” By this, I mean that each trader must decide for himself or herself how much risk they can tolerate and where they want to get out.

But I’d say that the majority of members have heeded my lesson and look to cash out with fast profits while the getting is good!

As you can see, members are racking up gains by following my Trade Of The Day strategy.

This brings me to the final mistake I see many traders making…

Day Trading Mistake #3: Going It Alone

If you have never traded options before (or have and have not been successful at it), I highly recommend that you don’t try going it alone.

There is no shame in turning to more experienced traders for help. I am eternally grateful to the mentors who help shaped my trading and contributed to my immense success.

I, in turn, have made it my mission to help coach other traders, and I love what I do.

I love helping people just like you make money, and I love helping other people make the kind of money trading that can truly make a difference in their lives. And that is true whether they are an experienced options trading machine or relatively new to the game.

If you’re considering day trading, I encourage you to start with my Trade Of The Day .

One simple trade… every day… that you can use to book fast profits. And if you act now, there’s still time to get in on today’s trade .

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