Trading in forex needs discipline, and you should consider trading as a business to become a successful trade. As the market is filled with investment opportunities, traders tend to act quickly, resulting in hasty decisions and mistakes that can wipe out your investment.
Here at Aron Groups, we have decided to provide you with a list of 6 common forex trading mistakes to help you keep your trades on the right track. Avoid these mistakes, make a profit trading forex, and remember you need time to learn the market.
Table of Contents
1.Start without research
The first and the worst forex trading mistake is to trade without education. The idea of making a profit is interesting. Still, most traders ignore the fact that trading is a business and, just like any other type of investment, you need to learn and educate before making money.
Most traders think they are talented and special and can make money from day one; they take others as fools and will lose. Starting to trade forex without knowledge is expensive, and many have left the market with huge losses. Those who lose their initial investment take forex as a scam; they did not spend enough time learning rules and terms and didn’t know how to trade.
Remember that trading in forex, you always have a 50:50 chance of having a win, no matter how experienced or how mature you are. Regarding trades, there are always two parties involved; while one makes a profit, the other loses.
So, the real question is how to reduce the loss because, let’s face it, there is no zero loss in forex. Loss is inevitable but manageable. If you learn the market, you will be able to use risk management techniques and consider the best times to enter and exit trades. So, as the first role, never trade forex without experience and education. You can always use a demo account to learn everything in a simulation and test your trading ideas before trading real money.
Invest in education
Like any other career, you must spend time, energy, and money to understand forex and trading. It is the first investment that will result in huge benefits. Your only chance to outperform the masses of other traders is to learn different strategies, complex terms, and tools. There are many educational resources online; educate yourself in any way possible and try to use different websites, courses, and books to understand market movers and strategies.
You need to understand economics to learn how interest rates and other economic news (such as trade data, employment, and activity) affect currency pairs.
Understand market fundamentals to learn what are the market fundamentals driving movements in your chosen currency pairs. What are the technical indicators you need to be aware of to trade successfully?
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2.Not having a strategy.
No matter what market you are trading in, you need a trading plan, a roadmap, or a strategy. Sit down and write down rules to manage your money and reduce loss. You should be ready for the unexpected price fluctuations.
You must know when to enter or exit a trade before it’s too late. Finding the right moment to start or exit a position is important; sometimes, the only factor separating a winner from a loser is time.
To create a perfect strategy as yourself, the following questions:
- When to enter a trade?
- What criteria will you use to evaluate a trade – moving averages, economic news, etc.?
- What sort of gains are you targeting?
- Which currency pairs should you focus on?
- When should I exit a trade?
- How much are you willing to lose on a trade?
- Where should you set take profit/stop loss trades?
- How long will you allow your trade to reach the target you have set?
- How much money should I risk on individual trades?
- What is your budget?
- What amount of leverage is appropriate for your circumstances and risk tolerance?
These are the most important questions you should be asking yourself. Remember that a perfect strategy for someone else might not be best for you. For example, a trader who cannot tolerate the high volatility market tries to trade in peace and consider long-term trades to avoid different trades simultaneously. On the other hand, there are traders who prefer to open several trades within a trading day, make small profits, and enjoy volatile markets.
So, you need to know your trading style and choose a strategy that suits your needs. Remember that trading needs discipline, and you must spend enough time learning and evaluating your strategies before choosing a perfect one. You can benefit from a demo account and test your favorite strategies before applying them on real trade.
3.Risk more than you can afford
One of the most common forex trading mistakes is to risk more than you can afford. Never open a large position when you do not have enough experience. Trading in forex is complex, and the market is volatile. You need to consider many things before entering a position. Learn everything about trading and risk management, and remember that forex is unpredictable. Never put all of your eggs in one basket.
4.Underestimating leverage
One of the most interesting features of forex is trading with leverage. Remember that leverage can multiply your profit, but it has the potential to magnify your losses as well. In order to benefit from leverage, you need to understand the correlation between currency pairs to choose currencies that move in the right direction. It is recommended to keep the total potential losses at 5%. If you are not familiar with forex, do not use leverage and leave it for the future when you have more experience.
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5.Trade for fun
Some traders make mistakes and treat forex like a hubby; they forget that trading is a business and you should be disciplined to make a profit. Never start trading as a hobby; forget about forex if you cannot dedicate enough time to the market. You should not trade to try your luck; forex is not a game, and you need to be consistent and follow the market trend to make a profit.
6.Entering and exiting at the right time
As touched upon above, having a strategy is vital for trading forex, because one of the worst mistakes you can make is averaging down. You should exit a losing position as soon as you can and never invest more in a lost position based on hope. Emotions are not a good factor; adding more money to a losing trade will only exacerbate your losses.
In fact, even if your trading idea is correct, the market might move against you for longer than you expect. On the other hand, if you exit a winning position too soon, you will miss out on larger gains.
Remember that the first rule in trading forex is to cut losses and maximize profits. So, stick to your trading strategy and never exit a sinning trade sooner than you are supposed to. In most cases, traders act out of fear or greed instead of rationally evaluating market indicators.
In the end
Forex trading mistakes are inevitable for a newbie, as trading is risky. But you can avoid further risks by using the right strategies. If you plan to become a consistently profitable trader, you must learn to overcome the pitfalls and mistakes when trading the forex mentioned above.
You will learn more by using a demo account, and you will be tuned to market conditions. Remember to consider your risk tolerance and the amount of money you are willing to lose on each trade. Losses are avoidable in forex trading, but you must learn how to minimize losses and maximize profits. Don’t underestimate the importance of a demo account, and test your trading ideas before trading real money.