The forex trading market is a business opportunity that has low barrier entry, meaning it’s among the most accessed markets worldwide. You can theoretically start forex trading if you have a computer, internet connection and a couple of hundred dollars. However, just because it’s easy to start trading, it does not mean it’s easy to make profits though. In your journey to learning trading, there are plenty of pitfalls you’re going to face, and it’s inevitable you will make forex trading mistakes that may destroy your trading.
When trading online currencies, there seems to be no end to the mistakes forex traders can make.Although most newbies are always the most susceptible to beginner forex trading mistakes, experienced traders too can also make mistakes.
While most of the traders often hung their heads low after making forex trading mistakes, it’s actually a good thing. Why? Making mistakes means that you’re applying, learning and finding out what does not work for you. If you do not make mistakes, you can never learn or improve. However, consistently making the same mistakes, means that you’re not learning from your previous mistakes and you’re likely not to progress as a result.
Trading can be quite exciting and rewarding, but it can also be discouraging and challenging at the same time if you’re not careful.
Read on and allow the article below to kick-start your trading journey, by enlightening you on the top seven forex mistakes that may hinder your trading progress.
1) Lack of a Trading Plan
Similar to any business venture, which requires a business plan detailing how to run the business, every trader needs to lay out a trading plan. After all, forex trading is a business and the best way to make considerable progress in setting out a plan so that you know where you’re headed, and how you’re going to get yourself there.
Experienced traders get into the market with a well-defined plan. They clearly know their entry and exit points, amount to capital to invest and the maximum amount of loss they’re willing to take.
A well-crafted trading plan allows you to identify and hopefully eliminate some of the occasional, silly and unavoidable mistakes. Additionally, you can set yourself some goals and use it the trading plan as a yardstick to measure your progress.
Remember the saying that goes” failing to prepare is preparing to fail.”
2) Trading without Knowledge
“You can set up a trading account and be trading within 10 minutes, create an account now and let money flow to your pocket.” Does this sound familiar? With brokers and internet marketers marketing their platforms, you might get tempted to think trading is easy.
However, getting into forex without sufficient knowledge is one of the beginner’s forex trading mistakes that should be avoided at all cost. Trading with limited knowledge could even be deadlier.
Many of the unsuspecting traders come into the trade without having adequate knowledge of what they are getting themselves into. In fact, newbies know so little of the trade that they even don’t know where to start.
Before you get entangled in this trading quagmire, ensure that you’ve mastered some of the basics of trading. For a start, you should be in a position to know why and how the forex market moves. Also, having an in-depth understanding of position sizing is vital to your general money administration arrangement and right usage of risk reward on each trade.
To learn more about the trade, ensure that you study, read, and practice thoroughly on a demo account before getting into the real game. Don’t risk your investment into something you’ve no idea of what it is. You need to develop your trading ideas clearly before making any investment in the forex market.
Overtrading is a perfect recipe for failure.
Many of the traders do not make money over the long run because of trading away too much. Trading too actively and in too many currency pairs means that you spread yourself too thin, and can erode all your returns to the point where all the profits and margin calls turn into significant losses.
Overtrading often occurs when you trade without a pre-defined trading edge. This happens because you’re emotionally overcharged, and this is why overtrading is not a common occurrence with demo account since no “real” money is involved. It can also occur when you trade without any trading plan or have not yet mastered a trading.
However, it’s pretty easy to avoid overtrading; you only need to stick to a trading strategy rather than gambling in the market.
You should only trade when your forex strategy or plan dictates- and not because you just want to trade. Keep in mind that emotions can kill your trade, and this is why you to place a lid on them.
4) Adding to Losing Positions
When it comes to this forex trading mistake, it’s worth mentioning a money management technique known as the “martingale strategy.” It’s a sports betting strategy that was popularized by French mathematician Paul Pierre and is based on the premise of “double down.”
The technique stipulates that once you’re hit with a loss, you double your cash, so that the next time you win, you win back all the lost money plus more.
When looking at the forex market, many traders are tempted to add to a market that is going to their position. The market is already indicating you’re wrong, but you still insist holding on to a losing position by on adding to it hoping it will eventually work out to your favor, eventually resulting to at least two incorrect decisions.
One of the defining characteristics of successful traders is their ability to take small losses quickly if the trade is against them and moving on to the next idea. Losing is commonplace in forex markets, and successful traders know they’re not simply wrong, only that their edge didn’t play in their favor.
5) Not Using Stop-Loss Orders
Stop-loss orders are vital for trading success, and failure to implement the loss order can be the biggest forex trading mistake that a trader can make. The general theme behind the stop order is to make sure that your trading losses are capped before they become sizeable or rather stop you from losing all your capital when a trade goes sour.
By implementing a stop order, you basically limit yourself on your trade in the event the trade market goes beyond a boundary, which if it’s crossed your entire trade setup is invalidated.
Many of the traders are tempted to remain in a trade with false hopes that the market might swing back in in their favor only for them to make huge losses. Placing a stop-loss order in on every position controls your exposure to the volatile forces of the market, and ensures that you only lose a pre-determined amount of cash, not the whole lot in one go.
6) Excessive Leverage
Forex trading is a highly leveraged investment. This is to mean that the market can either boost returns for profitable trade or exacerbate losses on losing trade. Insufficient capitalization or excessive leverage can magnify the potential problems to unprecedented levels.
While new traders are dazzled by the degree of leverage they have, they may soon discover that excessive trading can quash all their trading capital in a flash.
For instance, if a leverage of 50:1 is used, which is commonplace in many retail forex trading, all it takes is a mere 2% adverse move to wipe out all your trading capital.
7) Giving in to the trading demons
It’s no secret that emotions cloud your judgment and instigating an emotional trading will only result in losses. Emotions kill trading faster than anything else out there.
Many traders on emotions always lose because they try to chase their loses or even try to ride the wave of the previous winner. Some of the traders also engage in revenge trading after taking heavy losses.
Experienced traders have mastered the art of self-control, and know when exactly to stop their trade.
While fixing the above mistakes might not make you an instant millionaire, continuing to make the same forex trading mistakes will impede your trading progress. Get proactive, and work on the above failures, one at a time. And once you get them out of your way, you will get much closer to a profitable trading.