Common Beginner Mistakes - Entry

The chart on the left shows short (sell) trades on the EUR/USD that was placed yesterday evening by a beginner (my brother). Three trades were opened within a five-minute time frame towards the end of a fall in prices.

Of course, when the trades were placed, he did not realize that there was an end to the fall in prices. His rationale was simple - prior to opening the positions, he noticed that the prices were falling markedly. He did not want to miss an opportunity to get in on the action, so he quickly placed the three trades.

That was common beginner mistake number one; ie, rushing to place the orders without first studying the chart because you are afraid of missing a big move. It is never wise to place trades when a big move (in this case, a fall in prices) is already in motion. Instead, it is better to wait and see what happens. If he had waited, he would have seen that the prices were starting to make a turn upwards!

The second mistake made in this trade was that he sold right when the prices were on (or near) the lower blue line (the 24 bollinger bands). Typically, buyers are waiting to buy at the lower blue line. If someone wanted to sell, the best place to have done that would be at the gray line (the one in between the two blue lines). But by the time the price went to the gray line, it would have become obvious that the price had already reversed directions, and was now heading up!

The take-home lesson in this example would be to not enter a position when a big move is already in play. Be patient and wait for the next opportunity.