We all want money. That’s the reason why most people wake up early to get to work, and come back home late. For Forex traders, some of them don’t sleep at times!
Therefore, since you are working so hard to earn this money, you should learn to avoid some silly mistakes. In forex trading, these mistakes will not only cost you your money, but most of your investments.
While some factors are out of the trader’s control, most of the mistakes forex traders make are as a result of ignorance or carelessness. As a trader, you should thus be very careful.
In this article, we’ll look into the five most crucial trading mistakes to avoid.
Inadequate Forex Market Knowledge
Before venturing into any field, it’s essential getting to understand that field operates. That’s the number one rule about entrepreneurship and investment.
The same applies to forex trading. Before venturing to it and risking all your money on it, ensure that you’ve got adequate knowledge about it. You can do this by reading books, journals and articles and even practicing on a demo account.
Get to know how different markets operate and their differences. Understand when it’s safe to trade AU, USD, EUR or Yen and when it’s not. Read more about indicators, get to learn more about different, and when they are more effective.
Failure to do this is like trading blind; you’re bound to lose your capital. Therefore, ensure you get adequate knowledge beforehand.
Over risking
This is one of the most common mistakes among new traders and even some of the slightly experienced. What they don’t understand is that more risks don’t necessarily equate to more profits.
You, therefore, need to ensure that you only risk what you had planned for. Avoid risking more than you can afford to lose regardless of the potential returns. Instead set a risking rule to guide you. You can choose to risk a maximum of 2% — or 3% on a good day — of your total trading capital.
Remember, making a profit in forex isn’t a guarantee. Therefore, set your risks wisely.
Trading without stop loss
Losing is almost inevitable in trading. There are days when the trades won’t favor you, and there are days they will. You can never predict how the market will behave during the day.
Regardless of the market you’re trading in, Australian, Hong Kong or the American, there’ll always be a day when you’ll lose.
You should thus ensure that you have stop loss to control the damage. Stop-loss ensures that the order is closed immediately the currency prices are below your set price.
Therefore, even though you’ll lose, you will still have some capital in the account to salvage the situation.
Ignoring your trading strategies
Your strategies contain your goals, plans, trading processes, and even your risk policy. At times, your greed for money may tempt you to overlook these strategies and go overboard. Don’t!
Your forex trading strategies ensure that you don’t overtrade, over risk, and avoid maximum losses. By overlooking it, you may end up risking more than you afford, follow the wrong goals, and even lose most of your capital.
Learn to be confident with your strategies and only modify them if it’s completely necessary.
Impractical Expectations
While trading can result in massive profits, such results will not happen overnight. It requires a lot of work and dedication from you.
Most people start trading and come up with goals and expectations which are unrealistic. This is because they judge the market based on their desires and wants.
If you’re trading on the Australian markets, it won’t favor you just because you want it to, or their currency price drop to favor your trade. You should be willing to do the analysis and determine how the market will move.
The Bottom Line
Forex trading is a proven way of earning income. However, it’s not the easiest of ways. You need to ensure you avoid these mistakes. Always set stop loss for all trades, research and learn more, control your risking habits, and always follow your trading plan.
By avoiding these mistakes, you’ll finally be ready to start trading like the experts.
Photo Credit: m4d group
If you ask me, forex trading sounds kind of risky. But this article was very helpful. Thank you.