Are you struggling with your Forex market trading mistakes, causing you to lose trading profits? If so, I'm going to cover the same steps I took when losing profits, so you're in the right place!
The top Forex market trading mistakes that most traders make, are trading the wrong time frames. Missing key levels of market structure on their charts, and marking out technical price patterns on their charts incorrectly. And finally trading too soon, not confirming the technical price pattern with an entry.
The key to understanding why the markets actually move the way they do is being able to determine and identify potential chart patterns.
Once you can master this number one tip, you will have the confidence and knowledge to trade any Forex pair.
Check out my Basics of Forex trading section for more about chart patterns.
Is it really that simple with Forex market trading?
It is when you look at it from a technical standpoint. So why is it so many Forex traders fail to generate consistent profits with their trading?
What I have come to find, is that the majority of traders fail with their trading, from a psychological aspect.
It's not what you would perhaps expect, with it being down to their personal experience level with reading the charts.
At the end of the day we are all humans, we tend to make things too complicated for ourselves when in fact it just needs to be the "Kiss" principle (keep it simple stupid!)
Patience and trading discipline is another large factor when it comes to trading the markets. We'll, it played a big roll for me when I started out with Forex market trading.
There are many other factors rolled into trading when it comes to having a consistent gain.
But the use of technical patterns to search for trade ideas is as simple as they come, when trading the Forex markets.
I know it's easy for me to sit here typing this right now, saying trading is simple when applying the use of technical patterns.
So if you've been struggling to make a consistent gain, or find it hard to keep things simple, you're in for a treat!
Below is four of the most common mistakes I believe new traders make when Forex market trading.
They range from using the wrong time frame to missing key price levels off their charts.
But by the time you have finished reading my post today, you'll have a much better understanding what you could be doing wrong and what you need to change!
- Trading the wrong time frames! (Normally looking at the lower time frames)
- Missing key levels! (Ignoring key levels of support and resistance)
- Marking out technical patterns incorrectly! (Cutting off candlestick highs and lows)
- Trading too soon! (Not confirming the trade patterns first)
1. Trading The Wrong Time Frames
When most traders start out in Forex market trading, they feel the need to be active in the markets every day.
Whether it's from what they've seen another trader do or they just believe a Forex trader is someone who is always trading.
The real truth with Forex market trading is...
Many great traders throughout the world understand the importance of sitting on the sidelines knowing when to be patient.
As a great saying goes, having the power to do nothing, is always going to be greater than doing something.
This is exactly what a trader should be doing when it comes to trading the financial markets. Especially with being selective with the way you risk your capital.
The biggest mistake most traders make, when it comes to trading the wrong time frames. More likely when starting out, is the ability to trade more frequently.
A new trader tends to believe if they trade more setups this would lead to making them more profits.
Ultimately, I'm here to tell you it's the complete opposite!
In fact, Forex market trading is going to be vastly different to any other endeavour you have tried before.
Where perhaps other endeavours, where more-is-better approach works in Forex trading it doesn't!
To understand the different types of time frames you can trade and what works best take a look at my recent article I wrote on the best Forex trading strategies, and pay more detail to the higher time frame approach with a Forex swing trading strategy.
Higher time frames will with out a doubt give a trader better trade signals when using technical patterns.
I say this from past experience, even when I started out with trading I took the same route with thinking trading the lower time frames was best.
I soon realised this was complete rubbish, and I needed to be trading higher time frames to see positive results.
Why does a higher time frame give you better signals when using technical patterns? I'm sure you're asking this question right now!
Where the lower time frames of 5-15 minute charts may seem like a good choice when starting out. Unlike the Daily time frame, they are full of noise.
What does noise mean, you ask?
Noise is from the lower time frames where they show a days worth of price action. Where a Daily time frame will show all of this movement within only one candle.
So where you will find a very noisy "choppy" chart on a lower time frame, the Daily can filter out this noise. Put another way, it helps to normalise price action during the increased volatility periods.
Lets now see this as an example on a chart-
As you can see from the daily chart above, the AUDCAD had a long standing descending channel formed.
If you now take particular note of where the retest occurred with the arrow above. Price never actually broke through the channel top.
Using the 4-hour time frame that you will see below, even shows a close beyond the outer limits of the channel. Without needing to go to a lower time frame the 4-hour shows the false breakout of the descending channel as well.
Extra Volatility in Forex market trading
It just so happens the markets where volatile on this particular day. Showing even the 4-hour time frame was susceptible to a false breakout such as this.
The traders who already had the patience and remained watching the AUDCAD on the daily time frame.
Became the ones who reaped the rewards out of this setup! Not only that, but they also preserved their trading capital not getting sucked into the 4-hour false breakout.
With a daily small pin bar (rejection candle) giving a trader a nice entry to catch the next move lower on this descending channel for a nice 200+ pips.
My Solution to this mistake:
You guessed it!
Stick to the daily time frame and anything higher. Myself I trade the daily time frame and make most of my analysis of both the daily and weekly time frames.
I do still move down to the 4-hour time frame as well from time to time, to fine tune my entry point but never anything lower!
However my recommendation, if you're new to Forex market trading is to stick with the daily time frame until you see a consistent flow of profit.
Only then, should you consider to begin to venture to any lower time frames, to search for a better entry point.
Now you know, STOP wasting your time trading those lower time frames and start becoming a consistent trader today with the daily time frame!
2. Missing Key Levels
I know, you're already asking yourself how can I miss key levels when I'm trading the levels that make up the technical pattern.
Let me start this section of with answering that question first, then I will dive into those key levels themselves.
Missing those key levels is indeed possible, but the key levels I'm referring to are the ones that are formed by swing highs and swing lows in the market.
Measured Objective with Forex market trading
Most technical patterns, use what is called a measured objective. While these are great for traders to find profit targets with technical patterns.
They can also become very dangerous to a trader as well, when they go blindly setting profit targets without considering other critical key levels at surrounding price action.
The easiest way for me to demonstrate this, is with a price chart below.
The chart above shows an inverted head and shoulders pattern, that had formed on the NZDCAD Daily chart.
For more on this technical pattern and other reversal price patterns. With turning you into a more profitable trader, you can study on another previous article I wrote by clicking here.
The measured objective for this formation was a healthy 375 pips.
With any technical price patterns like this, you just can not expect the move to be direct to the profit target.
This setup was no exception, with some bumps along the way.
After breaking the neckline, NZDCAD found some resistance at an area of value on the chart.
Doing chart analysis correctly with Forex market trading:
If I hadn't done my analysis here correctly and made myself aware of the potential key level of resistance above the entry. I might have panicked and exited the trade early.
But understanding the value of checking for key levels on my chart as well as technical pattern levels, I knew this level existed.
And was going to be highly likely, I would see some selling pressure or profit taking occur at this key level.
I also knew from this placement on the chart with the recent break of the inverted head and shoulder neckline.
Was going to become more influential than the level of resistance that lay ahead. Thus deciding to hold onto this position to the final measured objective profit target.
Sure enough, this trade did pause right at the resistance level with a small consolidation before breaking through to the final measured objective profit target.
Next time frame lower for more clues:
Moving down to the 4-hour time frame, I could see this consolidation that took place at the resistance key level.
It in fact formed a bullish consolidation continuation price pattern. Which you can read more on continuation price patterns, and how you could start making big profits. With heading over to another article I wrote by clicking here.
Seeing this forming on the 4-hour time frame gave confidence price would break bullish continuing to the final target.
It also gave another opportunity to add to this already bullish momentum in the market.
Because I had already made myself aware of this resistance level before entering into the trade, I gave myself two options
- Take profit at this key level of resistance
- Look to hold the trade to the final measured objective target
Which option I actually took here is irrelevant.
What I'm trying to say, is understanding where all the critical levels are before ever committing to entering a trade.
Will allow you to give yourself options, preparing you for every possible outcome that could potentially come.
Taking this trade as an example, I was able to react logically than emotionally. After seeing the bullish consolidation continuation pattern that formed on the 4-hour time frame.
My Solution to this mistake:
When ever you look to take any trades, always mark of your support and resistance levels. If you struggle with understanding how to use support and resistance with your trading and want to know the difference between support and resistance. You can find out by reading through another article I wrote by clicking here.
This will therefore give you options before entering into each and every trade you now take. You will now get to see and prepare for every possible outcome.
When trading technical patterns, don't just use the measured objective by itself. Always look to identify possible swing highs or lows within the market that fall within your trade direction.
Allowing you to plan each trade out, taking away the emotions with your trading. Therefore making each trade decisions, a logical one!
3. Marking Out Technical Patterns Incorrectly
This mistake traders make, could very well be the biggest mistake of them all! When marking out technical patterns, I see many traders draw them incorrectly.
How does the typical Forex trader get this wrong with Forex market trading?
For some unknown reason many traders will mark the pattern with Forex market trading, with shaving off the candle wick highs and lows. When you do this, you are hindering your ability to trade the pattern successfully.
With making it more difficult for a trader to identify the breakout of the pattern. Above all, it will also make it even more tougher to determine an actual entry.
Lets investigate this further, by checking out a chart showing exactly what I mean.
Notice on the chart above, how I have drawn the Ascending channel levels incorrectly. By placing the levels cutting off the wick highs and lows.
This is an example of what I see many traders do quite often.
Is there a right or wrong way to draw these structure levels?
That's a good question, and the above channel is in fact entirely valid. So why am I saying it is not correctly drawn. It all comes down to the precision of the structure level placement. The above chart is the type of structure you should be looking to trade.
However, the levels need to be drawn with more precision, therefore giving you a higher success rate with trading the patterns.
Lets look at how I draw a ascending channel correctly.
Lines Up Perfectly...
On the chart above you can see this time I have drawn the structure levels so they line up with the highs and lows perfectly.
The best part,
Even though the two chart differences may look like a minor detail. If you was to look closer you will see on the 2nd chart there is a retest of the broken channel.
This is where one trader benefits with trading in this style of marking the pattern correctly. Where the other trader may find frustration, and potential missed trades or even losing trades.
Hopefully you can see how this minor mistake can cause you problems with your own trading. Not many traders will think this makes much difference, but you now know it does!
More extreme example with Forex market trading technical patterns
The example above was mild compared to what I have seen, with this mistake. Lets now look at how drawing these levels correctly shows why it works.
On the chart of the EURUSD Daily above, I have drawn a bearish trend line. You will see I have drawn this incorrectly with a swing high being cut off.
How would you have drawn this?
I'm hoping now, you are getting the correct way to draw out these structure levels with technical patterns.
Here is the proper position of this bearish trend line.
Besides the fact this trend line now isn't cutting of the swing high, there was something else at play here as well. Which tipped me off to knowing the correct trend line placement.
By drawing now a Descending channel instead of a trend line will give you clarity of why this level should have been drawn correctly.
And I could see that the swing lows lined up to help me identify the precision of the resistance.
Another mistake traders will also make from drawing these technical patterns incorrectly. With seeing false breaks and trying to trade them at incorrect locations.
Where in fact they are not actual false breaks, why?
Because those individual traders failed to plot the correct levels. Putting them at an disadvantage when trading the patterns.
My Solution to this mistake:
So, to sum it up when ever marking out your levels with any technical pattern. Always make sure that you draw your support and resistance levels, in line with candlestick highs and lows.
Making sure you stick to this rule you won't fall victim to any false breakout.
In other words, a close above or below a support or resistance will be a valid breakout. Not putting yourself into a losing position where the trade goes against you.
That said, you just won't find every setup the same. Most likely you won't find that every level lines up perfectly to extreme highs or lows.
It's okay if every wick doesn't line up with each level you have drawn. Most important is it captures each area without cutting out too many wick highs or lows.
4. Trading Too Soon!
Final mistake made with Forex market trading?
In this final mistake I see many traders making, with not confirming a technical pattern with an entry. Therefore, attempting to try and trade a Forex market trading entry. Before the pattern has actually fully formed, with a favourable entry!
Being able to identify price action patterns is great, but they won't become profitable until you have learnt how to trade them efficiently.
This won't happen especially if you are trying to trade of structures you are marking that are unconfirmed! One great example I like to use, is with the double top and double bottom formations.
Which you can learn more about these two reversal price patterns, and turn your trading around by reading through a recent post I wrote here.
Neither structure levels are confirmed on this pattern until price actually breaks the baseline. Without price closing above or below this baseline, makes this structure insignificant.
What do I mean by this?
We'll without the break and close of the baseline, I can't actually confirm this as a double top or double bottom pattern.
Take the double top formation below as an example of this.
If you note at the current point of price on the GBPUSD chart above, price has not yet closed below the support.
So not only has this reversal not yet been confirmed, you can't actually call this a double top pattern. One day later, the baseline is broken and confirms the reversal of the pattern.
I'm sure you have probably made this mistake at some point in the past, even I did when I first started out in Forex market trading.
This isn't just limited to reversal patterns, but any technical pattern would need to be confirmed in the same way. Take the descending channel I spoke about on the EURUSD in the previous mistake.
While trading the outer boundaries of the channel is often made, it's not normally advisable or profitable.
Typically, waiting for the breakout to be confirmed is more advisable.
Lets now look at this on an example with a descending channel on the CHFJPY 4-hour time frame.
Becoming more confident!
When you start to become more confident and comfortable with placing your levels of support and resistance. It will then become a waiting game for the technical pattern you have marked out.
With the only thing that should catch your attention now is when there is a break and close of the support or resistance respectively.
It's important you always wait for that close!
Never look at trading any pattern without the close, trying to trade these just solely on a break of the level isn't good risk management.
The chart below will now demonstrate just this, with waiting for price to break the ascending channel support to confirm the pattern. Then knowing with more confidence you can search for a potential trade entry short.
It doesn't matter if you're trading a double top, or a double bottom, channels or even a head and shoulders pattern.
Or any other variation of a reversal or continuation pattern. The same rules apply to them all, waiting for a break and close to confirm the pattern first then searching for a entry.
My Solution to this mistake:
Of course, you already know what I am now going to say! Make sure you always wait for the breakout and close of the support or resistance level of the technical pattern you are watching.
Before ever considering an entry, this will therefore provide a greater confidence to any possible trade setup you might be watching.
Above all, it will help you towards the development of your trading discipline and patients with Forex market trading!
Why not check out the video below on how to read trends in the markets correctly. This will help you understand the movements of trends in better detail.
Turn Your Trading Around And Learn To Trade Naked Today!
I'm not saying you will be literally trading naked: But you will learn how I trade a naked price chart! Interested in learning a new skill and how to read raw price on the charts, then click here now.
Regardless of how long you have been trading technical patterns with Forex market trading. If you make any one of these four mistakes outline above is going to be a sure way to losing your profits.
With becoming consistently profitable with trading, it will depend on the time frame of choice you are trading.
Trading the higher time frames, making sure you stay conservative with any trade entries you take.
Will have a massive outcome on your trading results!
Perhaps you have fallen into this trap of making these common mistakes. What's important is you take away from my post today. Is you've recognised the problem, and you're willing to correct the issue.
Just remember, to become a successful Forex trader you need to be disciplined and patient. Trading success doesn't happen over night and the end game is what you are aiming for!