Some Famous Words of Warning for Forex Traders

A profitable forex trading plan should keep a trader from committing some of the classic mistakes which many forex traders pay dearly to learn.

These comprise the classic "don'ts" of forex trading, along with various other warnings about what sort of things to avoid doing when trading in the forex market.

Some of these warnings and precautions include:

"Don't stand in front of a train."

Good advice in the forex market and near train tracks. When a market has obviously picked a direction and has the conviction of a large number of traders and money propelling the move, either get on the train or step aside and let it pass.

"Don't pick bottoms or tops."

"The market's never too low to sell or too high to buy."

"Trader that pick bottom, get handful of do-do".

These sometimes rather colorful market sayings all warn traders to avoid relying solely on their valuation attempts when trading. Often, traders may be tempted to buy what appears to be a ridiculously low level, or short an "obviously" overbought situation.

Nevertheless, as mentioned previously, lows often lead to lower lows and highs often lead to higher highs, especially in trending markets.

"Don't bet your house."

This saying refers to trading only with money you can afford to lose. Trading in the forex market can be extremely risky and the entire sum of money committed to the market could either explode and multiply or disappear in one sharp currency move.

Refrain from believing anyone that tells you that forex trading is not risky or that profits are guaranteed.

"Don't double up a losing position".

Adding to a losing position or "doubling up" may work for a lucky trader once or twice. Nevertheless, in most cases, adding to a losing position will only multiply the losses.

Often, it's better for a trader to just get out of the market by closing the position with a manageable loss. They can then have a clearer head with which to reassess the situation which caused their loss before beginning to trade again.

"Don't let a winning position turn into a losing one."

This market warning refers to riding an initially profitable position into a loss. This common trading mistake is often the product of hope in that the trader hopes the position will return to profitability while the market continues going against their position.

Also, the trader that had a profit in the position and watched it go into the red often feels they are still right despite evidence to the contrary. This often results in holding on to the losing position as they watch the money evaporate from their trading account.

"Don't marry a position."

Marriage is for couples that want to be emotionally and materially bonded and is simply not appropriate for a trader's relationship to a trading position. Remember, the market is open every day with an endless amount of opportunity for those with heads clear and objective enough to discern it.

Marrying positions generally occurs to traders with losing trades because winners generally cash out, while losers can take a longer time to divorce emotionally.

Also, giving into your emotions while trading is a common sign that you may be trading without a plan or perhaps disregarding the plan you do have. Emotional trading is the first step in losing discipline.

Remember, trading forex is a highly competitive business that does not take prisoners. Much like a casino, the forex market will not let you have your money back once lost!

"Bulls make money and bears make money, but pigs eat crap."

The last part of this warning is often also rendered: "pigs get slaughtered", and it generally refers to not getting greedy when trading.

Profits generally take care of themselves, but getting greedy can easily lead a trader to ruin as they increase trading sizes beyond what risks they can afford or do not take profits at appropriate levels while waiting for more gains.

"Plan your trade and trade your plan."

Many new traders begin trading without a plan and subsequently quit trading after losing money. Trading is a business and should be treated as such, and since a person would usually not go into business without a business plan, the same applies to trading.

Generally, trading without a plan makes up the first big mistake a novice trader might commit. If the trader does not have a plan, the chances for their profitability and financial survival in the forex market go down considerably until they do get one.

For such novices, forex trading turns out to be far more of a gamble than the intricate financial game that successful forex trading really is.