7 Forex Trading Mistakes To Avoid
Forex trading mistakes are human errors common among traders. Usually, these mistakes happen among novice traders regularly – and since the foreign exchange market has little or no barrier to entry, it is regarded as one of the world’s most accessible day trading platforms.
Therefore, knowing these avoidable Forex trading mistakes would help traders become more efficient as they carry out their trading activities. Besides, trading mistakes are a common occurrence among traders regardless of experience, having a grip on the trading mistakes may limit the effect of trading challenges.
With this article, traders would be able to avoid making the same blunders over and over again. So, whether you are an expert or a rookie trader trading errors are bound to happen.
So, these 7 avoidable Forex trading mistakes would serve as a guide to traders before taking the plunge – these are the main reasons newbies in Forex trading fails.
Staking Above What You Can Afford To Lose
As a trader, you must determine how much of your capital you are willing to risk on every trade. Traders should risk not more than 1% of their capital in any trading activity – this implies that one stop-loss order closes out a trade if it’s not more than 1% loss of the capital.
However, in the event of multiple trades loses, only an amount of the trading capital will be lost. Also, if more than 1% is realized on each winning trade, the losses are recouped.
Therefore, it is recommended that you set a certain percentage for the amount you can afford to lose daily. If it’s 4% – discipline yourself not to exceed that point. Ensure you play with the capital that has been designated for that purpose.
Hiring A Wrong Broker
There are several CFD brokers around the world, so, hiring the right broker can be a daunting task. Proper regulation and financial stability are essential before sealing a deal with a broker – these details should be available on the broker’s website. So, safety is the watchword – get a comfortable platform that is user-friendly.
You should invest time when choosing a broker. The following tips would assist you in hiring the best broker; have a clear goal of what you want to achieve, what does the broker offers, use reliable sources to get referrals, use small trades to test the broker, and refuse bonus offers with their services.
Engaging In Forex Trading Without A Plan
Trading without a plan is among the Forex trading mistakes that should be avoided. A trading plan is a detailed document where your strategy is outlined. It shows when what, and how you will trade.
Also, the plan states your target market, trading time, and the time frame to use for making trades and trading analysis. Besides, it outlines your risk management strategy and how to enter and exit trading for both losing and winning trades.
If you don’t have a trading plan, you might be gambling. So, get a trading plan and test-run for profitability using a simulator or demo account before putting in real money.
Trading On Many Markets
To gain the necessary experience, it’s important to trade in a few markets. Many newbie traders trade on numerous markets without recording any success because they lack understanding – do it on a demo account if need be.
Irrational trading (noise trading) makes traders do trading not having the right technical or fundamental associated with the market. For instance, in 2018 Bitcoin sucked many noise traders at the wrong time – with many coming in at the Euphoria stage of the market and recording a lot of losses.
So, to become proficient, start with a few markets and gain mastery, then you can go on trading in numerous markets.
Lack Of Adequate Research
As a Forex trader, you should invest in proper research and execute a certain trading strategy. Adequate research would enable you to know the market trends when to enter and exit and other influences.
So, when you dedicate time to the market, you would understand the market properly. Some focal points within the Forex markets need a thorough examination if you must succeed in your Forex trading adventure.
Avoid unverifiable media and baseless advice. This is also among the Forex trading mistakes common to traders. However, these media releases and tips should not be discarded but investigated before taking action.
Not Reading Books On Trading
So, whether you are a newbie or a long-term veteran, there are great benefits associated with reading trading books. Successful people like Jeff Bezos and Warren Buffet have a strong affinity for books.
Therefore, the following books recommended for traders;
‘Naked Forex’ by Walter Peters and Alex Nekritin
‘Trading in the Zone’ by Mark Douglas
‘Market Wizards’ by Jack D. Schwager and Courtney Smith’s ‘How to Make a Living Trading Foreign Exchange’
So, create a daily reading routine to help you get everything that is needed to become a proficient day trader.
Don’t Keep Trading If You Keep Losing
The two trading statistics to keep an eye on are your risk-reward ratio and your win-rate.
Your risk-reward ratio is your winning to your average loss on a trade. If your average losing trades are $100 and winning trades are $150 – your reward-risk ratio is $150/$100 = 1.5. This implies that you are losing as much as you are winning.
Your win-rate is the number of trades you win and it’s always in percentage. So, if you win 80 trades in 100, your win-rate is 80 percent. A win-rate of not below 50% should be targeted for a day trade.
Therefore, day traders should maintain a reward-risk of over 1 (above 1.25 is recommended). Your trading can still be profitable if your reward-risk is a bit higher and win-rate is a bit lower or vice-versa.
These Forex trading mistakes are avoidable when you have the correct foundational knowledge trading strategies. All traders are prone to mistakes, but minimizing or eliminating them would prevent a repeat.