Forex trading education - Trap 1: Size of Leverage
Let's see why everybody falls into the trap.
Let's discuss the significance of the size of leverage: you learned a trading strategy and you are starting to gain, the strategy works. The day comes that you have been trading in the market already for a couple of months and you are making very substantial gains. You've become experts in the Euro - your life is the Euro. And then, one day, you are sure that the Euro is on a rising streak. You read it in articles, the graph of the technical analysis shows a jumping point, and the G8 is convening and they say that they have to fight the strengthening of the Euro. Everybody already knows: the Euro is moving upwards and your saying "my money us doing nothing, why don't I make a large transaction of one million Euros? There is no doubt that the Euro is going to rise".
And then, you think: "No, no, we said it's forbidden to leverage". you hanged in there, you didn't let your emotions get to you and you went by the book - you opened a transaction of 10,000 Euros, well, that was obvious: the Euro rose by 100 pips. At the end of the day you fell like a loser that you made a small transaction. You gained 100 USD, because if you had leveraged, you would have gained 10,000 USD. And you say to yourself: "My money was doing nothing and we didn't make use of it - no big deal, what's important is that i am sticking to the rules that i have set for myself". Another day passes, and you say "Today the Euro is definitely correcting itself and it is going down", and you open another small transaction and you were right. And so forth for another one or two times. Now, you begin to break down. And then comes the day when you are sure the Euro will rise, and you are tempted to open a 100,000 Euro transaction. And then what happens? The market is on your side, you profit! You earned a tenfold increase - 1,000 USD in a day. It's fun making 1,000 USD in a day, right? Now you begin to get carried away. You are able to make 1,000 USD in a day, 2,000, 3,000 USD, and then you lose 5,000 USD in one day. Without noticing you've ended up in the big casino of the world. Ultimately, in the casino everybody loses money. Statistics.
Whats Next?
* Trap 2: improper use of stop-loss and take-profit
Or go back to the Education index
Let's discuss the significance of the size of leverage: you learned a trading strategy and you are starting to gain, the strategy works. The day comes that you have been trading in the market already for a couple of months and you are making very substantial gains. You've become experts in the Euro - your life is the Euro. And then, one day, you are sure that the Euro is on a rising streak. You read it in articles, the graph of the technical analysis shows a jumping point, and the G8 is convening and they say that they have to fight the strengthening of the Euro. Everybody already knows: the Euro is moving upwards and your saying "my money us doing nothing, why don't I make a large transaction of one million Euros? There is no doubt that the Euro is going to rise".
And then, you think: "No, no, we said it's forbidden to leverage". you hanged in there, you didn't let your emotions get to you and you went by the book - you opened a transaction of 10,000 Euros, well, that was obvious: the Euro rose by 100 pips. At the end of the day you fell like a loser that you made a small transaction. You gained 100 USD, because if you had leveraged, you would have gained 10,000 USD. And you say to yourself: "My money was doing nothing and we didn't make use of it - no big deal, what's important is that i am sticking to the rules that i have set for myself". Another day passes, and you say "Today the Euro is definitely correcting itself and it is going down", and you open another small transaction and you were right. And so forth for another one or two times. Now, you begin to break down. And then comes the day when you are sure the Euro will rise, and you are tempted to open a 100,000 Euro transaction. And then what happens? The market is on your side, you profit! You earned a tenfold increase - 1,000 USD in a day. It's fun making 1,000 USD in a day, right? Now you begin to get carried away. You are able to make 1,000 USD in a day, 2,000, 3,000 USD, and then you lose 5,000 USD in one day. Without noticing you've ended up in the big casino of the world. Ultimately, in the casino everybody loses money. Statistics.
Whats Next?
* Trap 2: improper use of stop-loss and take-profit
Or go back to the Education index
