Top Mistakes in Forex Trading

Trading seems so simple. After all, a price can only go up or it can go down so all you have to do is pick the right direction then sit back and wait for the money to roll in, right? Well, not quite. 

The trading world can be full of surprises for those who have big ideas but little in the way of preparation, so we’ve put together some of the most common things that are overlooked when getting starting with Forex trading

Trading without a plan

Have you got a trading plan? If not, it’s time to get one and a good place to start is by thinking about why you’re trading. Is it because you want to earn a bit of extra money on the side of a regular job? Do you want to make it a career? Is it just something you’re doing for a challenge? Whatever the reason may be, your goals will help dictate the way you trade. 

What could you do? 

Work backwards. Think about what you really want to get from trading then work out how you’re going to get it. Consider the amount of time you’re able to dedicate to trading, the types of trades you want to pursue (e.g. high volume, low profit) and whether your level of knowledge is sufficient or whether you need to spend time learning. 

Trading too much, too soon

Because of the potential to earn money from trading the temptation, especially for new traders, is to push limits in the hope of greater profits. But going into trades too enthusiastically - either in volume or value - only serves to raise your level of risk. If you overreach and things go against you, you might bounce yourself out of the market before you’ve even had a chance to settle in. Too many people enter the trading markets with the idea that it’s going to set them on a fast path to millions. The reality is that FX isn’t the kind of thing where you casually throw in a bit of money and get untold riches in return - it takes a lot of skill and patience to get anywhere near those lofty heights.

What could you do? 

Build slowly and steadily. Test things out with a Demo account first then, once you move into Live trading with real money, invest a small amount and trade one or two currency pairs to get a feel for things. There is money to be made from Forex, but it rarely gets made on a handful of quick trades. The more time you’re able to dedicate to trading, the better you’ll become, the easier you should find it and the more opportunities to earn should arise.

Emotional trading

We’ve all experienced that feeling when you’re on a good run and feel like you can’t do anything wrong. Whether it’s on a sports field, making sales calls or cooking a fancy meal, sometimes you just feel in the zone and everything flows perfectly. When you apply that to trading, it’s generally when you experience a sequence of profitable trades and you feel like you’ve mastered it. But all good runs eventually come to an end and it’s crucial to remember this because, ultimately, it’s your money at stake. It’s good to be excited about trading and confidence is always a welcome characteristic, but don’t let emotion dictate your trading behaviour and push you into positions you wouldn’t normally take. 

What could you do? 

Try to temper your emotions. Before launching into a trade, take half a step back and try to look at it objectively. Does it fit with your strategy? Are you doing it based on sound information or just a gut feel? How would you react if the trade went against you? Come up with a system of cues that will help you protect yourself from too much emotional investment. 

Guessing

If you go into Forex trading without doing any preparation, you’re not really a trader. In fact, trading without putting any effort towards education or understanding how the markets work is more like walking into a casino, throwing some money on the roulette table and hoping for the best. While it’s true that there’s an element of unpredictability and volatility inherent to trading, by spending time learning and observing how the market works you’ll form an idea about the types of trades best suited to you. 

What could you do?

Start with some Forex education. There’s plenty available online in whatever format you prefer; videos, blogs, books and more. And take what you learn and apply it to a Demo account where you can practice with no risk.

Forgetting your safety net

Even with all the best planning in the world, it always pays to have a safety net and that’s what you get with a tool like Stop Loss. This is a function which automatically closes a trade if it reaches a pre-determined point that’s too far out of your comfort zone. When a Stop Loss is triggered you’ll still experience a loss but it’ll be a manageable loss compared with what could be a catastrophic hit to your trading account if left unchecked. No trader wants to be in a situation where their Stop Loss needs to be triggered, but all are thankful that it’s there to do its job. 

What could you do?

Simple: use the tools. They’re already built into the platform so there’s no excuse not to use them. 

By taking these tips into consideration before you set out on your trading journey, you should be able to avoid some of the more common pitfalls and be much better prepared to find success in the markets.

 

 

 

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