The Common Mistakes Made by Forex Traders

The Forex market attracts a lot of investors due to its minimum capital requirements. Thanks to the high leverage offered by most brokers (iForex, FxPro, FxOpen, Admiral Markets, Roboforex, and many others), you can start your trading adventure with just a few dollars on your account. But this experience is not as simple as it looks at the first sight. So, you’d better know the most common pitfalls before you get into them:

  • Starting your trading adventure without any trading education

    The most popular Forex trading mistake is to believe in your trading succeed without any relevant knowledge and skills. You should invest in a trading education to understand how the markets work and how the assets need to be managed. By learning the basics first, you increase your chances of making successful trades.

  • Making investments without a trading plan

    Before approaching your trading routine, you develop a trading plan to be followed. When you start ignoring your plan, you make a huge mistake. Why is it so? A trading method allows you to detect trading opportunities and manage your open positions in a more consistent manner. Thus, it should always be part of your Forex experience.

  • Trading without any financial resources

    Forex traders often forget to use a stop loss order, which allows them to close their positions after it reaches a particular level of loss. Without stop orders, you lose control over your positions, so they can freely fluctuate depending on the market’s price dynamics. Eventually, there is a high risk of loss because you don’t set any limit for your positions. If you want your positive trades to be higher than your negative trades, you should have financial and risk management rules clearly stated in your trading plan.

  • Averaging down (or up) to redeem losing positions

    By cutting your losses, you are more likely to succeed in making profits. Sadly, it doesn’t always work like that for traders. In fact, they may stick to their losing positions in the attempt to achieve success or make an even bigger investment into their losing positions. Why do beginner traders do that? They just think that the things will work for them and the current losing positions will become profitable sooner or later. In most cases, however, their financial losses are caused by the prices moving against them longer than expected. The main lesson to be learned is that you should never add to your losing positions!

  • Using excessive leverage

    Leverage and margin trading are excellent instruments that allow you to make bigger investments than you can actually afford. Thus, it becomes a double-edge sword, because it can magnify your losses as well as your earnings. This is the reason why an excessive use of leverage can take away your trading capital in a second. Don’t forget about a psychological aspect, which doesn’t allow traders to think analytically and act logically when. While using high leverage, there is higher individual risk on every single trade, addressing the psychological pressure you have to handle throughout the trading process.

  • Having unrealistic expectations about Forex trading

    Many beginner traders start trading currencies in order to improve their finances in a fast and easy way. This approach to Forex trading usually makes them get into a trap. Eventually, they make lots of mistakes leading to immense financial losses. To keep your motivation high, you need to work on setting realistic goals. Without setting achievable goals, you will be challenged and frustrated by every failure. To proceed with considerable changes in your trading, you should apply the SMART method (Specific, Measurable, Attainable, Relevant and Timely). It will let you bring structure and organization into your financial goals.

The Bottom Line

Trading is an attractive but quite risky activity you should be careful with. Knowing all the possible pitfalls and being able to overcome them make you halfway to the success. Thus, you will be able to trade in a more organized manner towards your trading goals. Learning how to trade is crucial if you want to increase your productivity, so you should take the time and effort to constantly improve your trading competence.

Remember that a trading approach along with strict money management regulations evolve with time because the market terms, your trading experience, and your capital also tend to change. To keep track of your progression, you should make some notes in the form of a trading journal.

Moreover, you should start your trading day by checking your trading plan. It is important to respect your finances and risk management regulations. By any chance, you should start trades in an impulsive manner! This is how you become a successful trader!