Nothing can be learned without experience and so is forex trading. It is a simple, lucrative and a good way to make money by buying one currency in terms of another. But going from novice to experienced can take a lot of time and experiments. No matter how many guidelines you follow, each trader tends to commit some of the other mistakes. So, here are a few common mistakes that people tend to make during forex trading. They can be avoided if pondered upon diligently.
1. Inadequate Knowledge
A trader must know the working of the forex market, its rules and regulations. Most importantly, the prices of the currencies are based on their economies. So, each trader must research and have in-depth knowledge of the concerned economies and linking economies as well. Details of the past events and forecast of future events play an important role in determining the values.
2. Being Greedy
This is the most common yet the most dangerous mistake committed by many traders. Each trader must set their profit limit and also the loss limit. If any of the two exceeds, the trader must stop, revise or relax and then continue after a while. Being greedy wouldn’t help. Instead, it might trap you under irrecoverable losses.
3. Impromptu Decisions
Trading in forex is not only based on luck but also calculations and following market trends. Making impulsive decisions might bring smaller profits which may seem lucrative but that success is not always guaranteed.
4. Never Trade Without A Stopping Point
Forex trading is a well-paid business if performed with care. Each trader must set a stop loss order for every single forex day trade. This helps in controlling the trader from incurring huge losses. One small loss can be compensated with multiple profits. But it’s difficult to recover if the trader has incurred hefty losses.
5. Lack Of Management
In order to succeed, a trader must be able to manage various aspects of forex trading well. It includes risk management and money management. A trader must clearly decide how much risk he is willing to take and how much money he is willing to invest. Also, the number of losses that the trader can bear must be specified too.
6. Investing All In A Go
A smart trader would never invest in a single trade. Rather, investing smaller sums of money into multiple trades is a more intelligent choice. It seems quite tempting when you’ve made a few good trades. But being rational is equally important.
7. Not Focussing On The Forex Charts
This is another mistake which leads to a lot of failed attempts. Traders get submerged so much into their confidence that they don’t take the forex charts seriously. Even though they play a crucial role in any analysis related to the forex market. So, ignoring or not giving enough focus to forex charts could be dangerous.
8. Choosing A Wrong Broker
Another major setback could be made in case you don’t trade directly. The broker selected must be reliable and should be well aware of the market. Trends and guidelines are equally important. Also, the cases of frauds are very occasional wherever money is involved. It is your money. So any mere carelessness could cost a person his fortune.
9. Not Stopping At The Stopping Points
Each trader must set some stopping points. It should be for profits, losses, investment amount and risk percentage. Setting them is as important as following them. This is an important trading principle.
10. Lack Of A Trading Plan
A trading plan is a written document that outlines the trader’s strategy. It defines how, what and when will the trade take place. Along with, it has a planned way to manage the risk as well. It is based on market trends. Having a trading plan helps the trader consider every aspect of forex trading and also helps in understanding the market better. The loopholes can easily be mitigated.
11. Making Trading An Addiction
A trader might get winning hand at the first few transactions and then start considering themselves as a prodigy. Though, that shouldn’t be the case. Traders who thought they know the market well were robbed of their fortunes. A smart trader is prepared for all ups and down as forex trading is very unpredictable.
12. Unaware Of The Market Trends
Forex market is a highly volatile and liquid market. Lack of recent trends and news will be a major disadvantage especially in case of day trading. A news flash can influence the values of the foreign currency almost immediately and if a trader missed it, he indeed lost a chance to make profits or could suffer from losses.
Forex trading is an incessant process. Any loss can be mitigated if it was a planned one. Setting up strategies and a well-researched trading plan could help a trader stay in the market for a longer period. Also, the risk factor must never be ignored. Traders are more likely to find success if they understand the common pitfalls and they know the tricks to avoid them.