Every Forex trader, even the most experienced one, will inevitably make some mistakes during their trading experience. Most people are aware of this fact and yet they continue to rely on luck or bad habits that may work sometimes, but have nothing to do with the professional approach that will ensure long-term success. In this article we will address the top 7 mistakes made by both advanced and novice Forex traders and will give you some tips that can help you stay on the winning track.
Not knowing the basics of a trade
Before you start making your first trades, you have to understand and learn the basics. The first element of a Forex trade is called the Entry and this is the price at which you decide to enter the trade. Then you have to define the price at which you will exit the trade in case it goes against you. This element is called the Stop. And finally, every player has to choose the point at which they will exit the trade and will take the profit. This last element is called the Target. While all of these elements are considered elementary, it is amazing that a great number of Forex traders often ignore one or several of them. Choosing the right entry, stop and target levels will help you to maximize your profits and minimize your losses throughout your trading.
This mistake is very common and is due to the fact that beginners tend to either use too much leverage or risk a lot of money on just one trade. Bids that are too high for your overall account balance are as dangerous as several leveraged trades that are open at the same time. Special attention must be paid to multiple trades that are correlated, for example EUR/USD and NZD/USD, as in some cases they will move in the wrong direction together and can cause losses. Apart from taking fewer trades and reducing their size, there is a general rule that can keep you from over-leveraging. It recommends that the total potential losses must not exceed 5% of your total capital.
Trading for fun
Forex trading is very exciting and rewarding but it should not be mistaken for a game. Never open a position just because you don’t have anything else to do or simply because you are bored. Discipline is crucial for your success and instead of entering the market occasionally to try their luck, traders must be consistent and follow the market trends all the time. Do not chase trends and always stick to a predefined plan.
Trading on small frames only
New traders make this mistake pretty often and the reason is that there is a lot more action on a five minute chart than on a daily chart of a currency pair. However, it is recommended that you keep a constant eye on the long-term charts because they allow you to foresee reversals and sudden changes that will have no reasonable explanation if you rely only on the shorter time-frames. In other words, you have to be aware of the big picture every time you open a position.
Being too emotional when trading
Every Forex trader should know exactly what their limitations are in terms of their trading style and emotional resistance. If you allow your emotions to take over, then you can find yourself in all sorts of trouble. The wisest thing to do when you feel angry or sad is to take a day off trading. Only when you feel clearheaded and relaxed can you come back and start trading again. The same applies to impatient beginners who want to get rich quick. Whenever you feel that inner rush to open your trading terminal and go “all in” it is recommended to stop and take a few deep breaths.
This one may not seem like a mistake to many of you, but when you think a little you will realize that there is nobody in this world who cares more about your own hard earned money than you. Don’t be too trustful of signal providers who advertise their product by bragging about a 100% success rate. A better method is to learn the market and the factors that move it, instead of just relying on somebody else’s predictions.
Trading too much
This mistake is closely related to emotions like euphoria and anger. Every time you exit a trade, no matter if it is successful or not, remind yourself that you have a strict plan to follow. Do not start trading again, just because you want to be in the market again. Instead, you should be more patient and should focus on making trades which are well thought out and analyzed.
If you’re a beginner trader, make sure you open a Forex Demo account, so you can practice and learn trading. Once you feel confident about your trading, you can proceed with a Forex Live account. There you can apply all your skills and benefit from live market opportunities.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.