Forex is regarded as the largest and most profitable online platform for financial trading. One can spot hundreds and thousands of investors but only a handful of successful ones while the rest of them are fighting hard to survive in the market. It is a very melancholic fact that the path of becoming a successful trader is a very difficult task and there are no direct ways to achieve this feast. Traders are often clouded with their own emotions when trading any asset and as a result of which they have to bite the dust.
The problems new traders are facing in the FX trading are more or less similar to the ones faced by the traders a decade earlier. The reason is quite simple … irrespective of the advancement in technology or innovation; human beings are still human at heart. Emotions get in their way which blocks their intelligence and hence trader concerned is unable to make the correct decision.
This particular blog will throw light at top 20 trading mistakes made by the traders while placing a trade in the Forex market. One should follow the mistakes seriously and make sure that they don’t such follies in the future. Successful implementation will keep losses at bay and help one become a successful trader in due course of time. As a potential trader, you are advised to have a proper look at the potential problems people make while executing the trade.
The top 20 Forex trading mistakes are discussed under the following headings:
- Not Maintaining Proper Discipline: Trading is an art and it is important one should be disciplined and be properly focused. More often than not it is found that emotions are running high in the traders’ concerned while executing the trade. One can become a successful trader when they make a large number of wins and a minimum number of losses.
- Lack of Proper Trading Plan: In order to become a successful trader one should have a proper trading strategy. “Failing to Plan is Planning to Fail”. In the absence of a proper trade strategy, one is not able to think judiciously and it is just like throwing arrows in a dark room. Without a good trading planning, one is unaware of the several aspects like return on investment, risk management etc.
- Unable to Adapt Oneself to Market: The Forex market is constantly changing and one can never predict which way it will go. Traders are unable to adapt themselves to the market and as a result of which they are unable to understand the current trends. Some high probability event comes as a big surprise for them and they are completely unprepared. Traders fail to plan the moves as well as the counter-moves for each type of market condition and hence incur losses. They are unable to modify their trade strategies when the market changes and this is the reason why most of the traders fail.
- Trial and Error: People tend to oversee their mistakes when they experience losses in a particular trade. They don’t give enough thoughts about why they had incurred a loss and what went wrong. Instead, they start planning for their next trade without giving proper thoughts to their mistakes and avoiding the same in their next trade. Successful traders are those people who believe in “trial and error: and try to learn as much as possible from their mistake so that they don’t commit the same in their future trades.
- Unreasonable Expectations: Forex is indeed one of the best places that can make anyone wealthy and most of the traders are driven by this particular greed. People are not patient and set very high standards for themselves initially without giving second thoughts. Instead of mastering their trade techniques, traders are besotted with the dreams of making a grand return on their investment. When reality hits and they incur losses, it becomes too late for themselves to overcome themselves from the quagmire.
- Poor Risk Management: Traders do not give enough thoughts on money and risk management and belittle its overall importance in building a good trade strategy. People will trade without putting stop orders and don’t think how much money is at risk. They do not diversify their trading strategies and ultimately they have to bite the dust and this leaves them in an utterly devastating situation with nowhere to go.
- Lack of Patience: Traders become impatient within a very small span of time which results in indiscipline. They want to make quick money and for that, they put a large amount of money at stake which is beyond their affordability level. As a result of which when the trade goes the other way around, the trader concerned is left with huge losses and are fiddling away with themselves. They don’t understand that success only comes with a proper and consistent approach.
- Not Seeking Advice: Majority of traders think that they are the best and don’t care about taking tips from others who have carved a niche for themselves in the Forex trade. People fail to seek advice and tips from the experienced professionals in the industry. In this way, the traders especially the new ones are unaware of the pitfalls and dangers of FX trading. In the absence of proper trading skills, the traders are left to fend for themselves and when some unexpected situation arrives, they incur heavy losses.
- Forex Trading is Easy: Most of the people who start trading in Forex think that it is very easy and one can easily master the skills. People think that in a time span of a few weeks, they will be able to generate a lot of revenue out of their investment and become rich. As a result of which they resort to aggressive trading and put all their capital at risk. When ultimately they experience losses, they are shaken up completely and ultimately their account is blown out and giving a complete end to their over-ambitious trading career.
- Day Trading: There are numerous stories on the internet that tell about the virtues of Forex scalping strategy or daytime trading. In reality, it does not work and the odds are not always in your favor. Short-term volatility is always random and the likelihood of loss is very high. People get carried away by the merits of day trading and ultimately lose all their capital in the due course of time.
- Lack of Knowledge: 3 out of 5 traders in Forex don’t have proper knowledge of the Forex trading. They don’t know how the market operates and how to read and analyze the current market trends. They are unable to devise proper trade strategies from the news feeds in the industry and hence they are unable to make profits. It is important that one should be properly informed and it is the ignorance that cost the Forex traders dearly.
- Over Trading: Often it has been discovered that the traders resort to trade in multiple currency pairs in their trading account and it is far more than what they can afford. Trades find it all very entertaining to enter into multiple trades without thinking about the impact it can have on their trading career.
- Not Making Use of Stop Loss: One can find many traders to invest in assets without thinking where to put the stop loss in the event if the trade goes against their wishes. They don’t have proper knowledge of the stop loss and ultimately they are unable to make full use of this trading strategy. As a result of which their career in the Forex market is short lived and perish after a short stay in the industry.
- Having Multiple Strategies: Traders tend to have multiple strategies and they shift from first to the next one in the event if they are unable to make any profits. They don’t realize that market won’t let them win all the time and there will be several occasions when they have to accept losses. It is vital that one should have a single strategy and try to refine it as much as possible instead of jumping across multiple trade strategies.
- Emotions: When traders have a share of many losses, they become emotionally insecure and their self-confidence is dipping low. In order to overcome the losses, traders make high-leverage trading without proper planning which results in further loss and sometimes it leads to complete wipeout of one’s trading career. One needs to have a proper trading plan if they want to conquer their emotions.
- High Leverage Trade: The new traders with the hope of making quick cash money are seen resorting to high-leverage trading as high as 500:1. They are not aware of the repercussions it might have on their trading career in the event if they lose. High leverage trade has a lot of risk tolerance and it leads to the nemesis of one’s trading career.
- Following Other Trader’s Tactics: One should know that traders have their own set of strategies and it is different from one trader to another. The trading strategy that has profited some particular trader does not mean that it would also do the same to you. So instead of following others, it is advised that one should stick to basics and devise a plan depending upon their need and suitability.
- Overconfidence: This is regarded as one of the worst and commonly made a mistake by the majority of traders in the Forex industry. When the traders have a streak of wins, they are so much consumed in their winning and brimming with over-confidence that they don’t give a lot of planning to their next trades. In the absence of a proper strategy, they lose and ultimately it has a very drastic impact on their overall trading career.
- Trading Tips from Forex Gurus: There are a lot of tips and guidelines available by people how to trade in the profitable way in Forex. The newbie traders fall victim to it and start paying heed to other people’s advice on how to place a trade. They don’t believe in their insight and rely on other to make trading decisions for themselves which ultimately leads to loss.
- The Absence of a Good Broker: Traders don’t do proper research and planning in searching for a good broker. As a result of which they are struck with brokerage firms that are either too expensive or they don’t have a proper trading platform. One should remember that 50% of the success in FX trade depends on upon having a good and reliable broker by one’s side.
The Biggest Forex Trading Mistakes
How to Prevent the Forex Trading Mistakes: Quick Tips
The most important that you need to realize is that the Forex market is very much unpredictable. No matter how many years you have been trading or how much skills you have, you can never predict what the market has to offer to you. No matter how strong you have analyzed things, the market can behave opposite to what you have predicted. Analysis can help in getting some possibilities but one should not completely rely on it. It is imperative that you must have a proper exit plan before you invest money in a particular asset. It will surely help you to stop and get out of that particular trade in the event if you think that losses are up to your way. Instead of making an investment an unendurable loss, it is wise to put a stop when you think that the trade is going to become unsuccessful.
Once the stop is properly implemented on that specific trade, your next focus should be to make as much profit as possible with keeping risks at bay. In order to do so, you need to make use of the limit orders on your asset investment so that the trade can automatically close when the price reaches a particular level you have expected. Another way around would be to move stops to a break-even point so that the profit can be obtained. In this way, you will always be on the profitable side even if the price is moving against you. Scaling out is another very popular strategy implemented by the successful traders to make profits. In this particular method, you will be able to close some part of your trade once it reaches a favorable position. These are some of the ways one should implement in their day to day trading plans which will help you in overcoming the common mistakes made by the FX traders.
I am living in London. I am an e-entrepreneur. I have been working in the financial trading industry as a professional since 2003. I am a fan of Chelsea team. I am married. I like cycling.