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Part 3: Creating the first forex strategy – 5 common mistakes when creating strategy

The trading strategy is not just about opening and closing trades, but primarily about trading morale and rules. Most often we are mistaken when it comes to the rules.

These mistakes are the main reason why most traders are losing trades. Take a look at these mistakes with us and possibly also at the alternative in the form of copying trades.

Mistake No.1: Demo Account vs. Real Account

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Timely transition to a live account is critical. To be clear, we don’t want to say that the demo account (when and how using forex demo) is useless, because it is certainly not, but most traders stay on it for far too long.

At the demo account learn how brokers trading platform works and backtest your strategies, meaning test new trading strategies on your demo account.

If you start trading from scratch, you can spend the first two, maybe even three months on a demo account, but then you probably should switch to a live account and continue trading with your low-risk strategy. Of course, keep the demo account, continue to use it for testing new ideas, strategy improvements, etc. Consider the demo account a testing environment in which your new trading strategy must always be approved.

Why switch to a live account as soon as possible?

The fact is, if you want to make money, you cannot do so on a demo account. Above all, however, your live account will make you learn how to deal with your emotions, and you shall see whether you are able to follow the trading strategy and thus gain valuable experience. See for yourself what a huge difference in trading real money maker.

We should probably slow down a bit at this point. At the beginning of your real money trading, sign up to your live account, where you can trade micro-lots or nano lots. This is really the smallest possible trading volume, and though you will not get rich trading with these, you will already begin to understand the trading psyche. There is usually no dramatic loss in these low volumes as losing a few hundred crowns is nothing that you should not be able to withstand. Your money will provide you with a relatively inexpensive useful experience.

In a nutshell, transfer to the live account early and start trading in the smallest of volumes, then increase them in proportion to your deposit and the risk you’re willing to take.

Mistake No.2: Finding reasons and data overload

sad traderMost traders (and not just the beginners) are constantly trying to find out why some movements have happened, and why other ones did not. It is important to realize that listening to Bloomberg and even reading all the news cannot give you the answers that you seek. Sometimes, the market simply does not behave as we would expect, which is especially true in the short-term view. Likewise, a strategy with ten indicators does not have to be better than a strategy with three.

If you can accept that you cannot explain everything, but your strategy is still meaningful and statistically confirmed, you have won. If you just want to analyze everything and be some kind of a walking Wikipedia, good luck with that. You may become a perfect trader someday, one who will understand the complexity of this big carousel, but honestly, you are much more likely just to get a headache.

Mistake No.3: Impatience and Losses

This subject is very important as it actually follows the first paragraphs where we discussed the difference between a demo account and a live account. On the live account, time seems to pass differently for some reason. You can spend an eternity waiting for a trade to open, and after it’s opened, you are forced to wait yet again; You may be in a loss or around zero for a long time – suddenly there is a small profit, so you decide to end it. But by doing so, you violate your trading strategy and you will not have sufficient profits to cover your losses. And the losses are the big scarecrow that causes the very problem.

At this point, it’s all about the psyche, and psyche can be trained on the live account. The beginnings are hard for everyone, so if you don’t get it right immediately, don’t worry, and try to learn from your mistakes.

Mistake No.4: Trading Strategy

How many traders have a trading strategy? And how many of them have it in writing? It doesn’t matter if it’s printed on written by hand. Or who has at least the basic trading morale rules written down? Most of you will say that you have these in your head, but what are you thinking about when you are losing a trade? Definitely not some trading rules and strategies. If you write it down and consider it “holy word carved in stone,” it will become your order and your support. It really does help a lot, so don’t underestimate it. As for the trading strategy itself, it is ultimately the last problem.

We shall advise you on this subject in our forex trading strategies category.

Mistake No. 5: Starting with the hardest

Many traders start trading at the stock index or focus on the forex market – or currency pairs. That typically means EUR/USD. Such instruments are already quite challenging, but to make matters even worse, traders sometimes resort to scalping or intraday trading.

It’s definitely a way of trading, no doubt, but it is probably the hardest combination that you could counter and to start with the hardest is not recommended … We won’t force you into anything, it’s up to you. But to start with less volatile instruments or at least swing trading seems to be a better option. However, it is of course up to you and you can definitely earn on any instrument offered in any time frame.

TIP: Trading signals copying

If all this made you head spin, but trading is still tempting you, choose (at least in the beginning or as one of the diversification options) trading that is copying someone’s trading strategy.

For example, eToro offers this option. It is a reliable broker with positive ratings and many traders all around the world.

Once you open a real account, you’ll see strategies that you can copy. For each strategy, you see its history, its profitability, but also all fees, such as the strategy fee to the provider (the owner of the strategy you want to copy). In general, you pay an entry fee, a management fee, and a profit fee. But some of these fees can mount up to zero. To learn more about coping strategies read article below.

Read more about copy trading: Copy Trading: Easy profit or a big risk?

Copying trading orders is definitely a good way to go. In addition, someday you can also move to the other side and become a strategy provider yourself, earning money on the trust of other people. To get there, however, you need time. Rome wasn’t built in a day.

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Part 3: Creating the first forex strategy – 5 common mistakes when creating strategy
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J. Pro

More about the author: J. Pro

Unlike Stephen (the other author) I have been thinking mainly about online business lately. I wasn't very successfull with dropshipping on Amazon and other ways of making money online, and I'd only earn a few hundreds of dollars in years. But then binary options caught my attention with it's simplicity. Now I'm glad it did because it really is worth it. More posts by this author

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