Forex Charts - 6 Common Mistakes That Cause Equity Wipe Out

By: Kelly Price

Forex charts and technical analysis is a great foundation for a successful forex trading strategy but most novice traders keep making the same mistakes and lose.

If you don't want to join them, avoid these common forex chart mistakes!

1. Using Useless Indicators

These are indicators based upon flawed logic and are mostly loved by the far out investment community and in the hall of fame we are going to place:

Fibonacci numbers, Elliot wave theory and cycles.

They all come from the markets move to scientific theory brigade.

Really?

Well if markets were scientific there would be no market as we would all know the price in advance. Of course uncertainty is what causes prices to move.

Ignore the above Fibonacci numbers were devised to solve a problem to do with the copulation of rabbits and are nothing to do with forex.

Elliot never made any money trading (despite what his fans say) and cycles well - look at a chart and see if you can spot repetitive ones I cant

2. Using Indicators with NO valid data

Day trading! If you want to use forex charts to make money you need reliable data and in a day or a few hours it's not - volatility can and does take prices anywhere, so its impossible to win no matter how good your indicators are.

3. Using lagging indictors to lead

Main error here is buying dips to moving averages. Lesson never use a lagging indicator to enter trades you are relying on hope you need to use momentum indicators!

4. Not Using Momentum Indicators

If you don't know what a momentum indicator is you will never enter with the odds on your side.

If you are using forex charts you need to enter with price momentum on your side and this is why they're so important.

Two great ones for timing entry on your forex charts are stocastics and Relative strength index - learn about them and use them.

5. Using Too Many Indicators or Rules

In forex trading this causes disaster for any forex trading system.

Less is more when trading, as your forex system will be more robust in the face of brutal market conditions.

Use too many indicators and there are to many elements to break and believe me they will - simple systems work best and always have.

6. The Dangers Of Curve Fitting

Why is it so many back tested systems fail in real time currency trading?
The answer is curve fitting - where the system is bent to fit the data.

One trader I know likened this to shooting at a barn door and then drawing a bulls-eye around everyone one AFTERWARDS!

Many traders cannot get their currency trading system to work so bend the rules a bit to make it- this is curve fitting and its more common than many people think.

Of course no two periods of trading history are exactly the same and that's why the system fails in real time going forward.

Avoid These Errors At ALL Costs!

These are six common mistakes and there are many more but if you want to win at forex trading then avoid them any one of them can cause you to lose your equity quickly.



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