Novice traders consistently make the same error: They fail to deal with market volatility and place their stops incorrectly.
The novice trader watches his trade rising, sees it reach its programmed stop and then gets out - only to see the trade continue rising. He could have earned thousands of dollars had he stayed. It happens all the time because many novice traders have no understanding of how to place and trail stops correctly. Currencies exhibit long term trends and your aim must be to stay with the trend without being stopped out.
This is how you should deal with this:
1. Forget FOREX day trading.
You have no chance of winning in day trading. A day is too short.
Day traders do not make profits. Don't try it unless you want to lose money quickly.
2. Entering the trade and initial placement of stops.
The best way to enter a trade is on valid breakouts, putting the stop behind the breakout point.
Major currency moves start from new market highs. Buying breakouts can give a worthwhile risk to reward and help you nail the biggest trends and profits.
3. Always look for confirmation
Buying on a dip - don't predict and hope. Wait for confirmation. This increases your odds of success dramatically.
Use stochastics to do this – this is the ultimate timing indicator.
4. Don't trail stops too quickly
If you start trailing your stop too quickly, you will be bumped out by volatility. Hold your stop back and set a target that has to be reached before you even consider trailing your stop.
5. Courage
Discipline is important, but it takes both discipline and courage to hold a long term trend when pullbacks eat into your open equity. You need the courage to take short term pullbacks in open equity in order to catch the big trends that can bring you big profits.
In this tough and risky business I am constantly amazed by traders who trade the market without any understanding of the basic concepts of standard deviation. Make sure you know what’s going on before you start. Knowledge of volatility is essential to being successful in FX Trading