Are you new to Forex Trading or a veteran? These mistakes can sneak their way into your trading.
Making mistakes is a most in every trading. In a very real sense, we learn by trial and error, so making mistakes is part of the procedure. In Forex trading, however, most traders want to reduce the number of errors they have to make before they learn – especially when money is involved. In this article, we’ll look at some common mistakes that beginners must know before they even get started (and how you can avoid them).
Waiting for the Market to Turn On
Beginners in Forex usually have a lot of faith in the positions they take up. Far too many first time traders hold on to losing position way too long because they are sure they are “right” and, if they wait long enough, the market will come around to their thinking. While it is good to believe in what you do, thinking you can wind the market to your will is a sure way to empty out that new trading account.
Going in with an Idea Instead of a Plan
There are different reasons as to why a person starts Forex trading. However, a common one knows that there is an expected pattern that follows certain news events like a Fed announcement or change in commodity prices. You get good enough at spotting them that you can predict how a currency is going to move after an event and, next thing you know, you are signing up for a startup account.
While trading around news is a good idea, it is not a plan. If you go in with nothing but an idea, you won’t know when to take profits when your idea is right or when to cut losses when it is wrong. Yes, ideas are good in starting a trade, but they need to fit in with the overall trading plan.
Changing the Plan on the Fly
When a startup trader notice positive results of a trading strategy, the temptation sets in to “bend” the trading rules a bit to seize more profits. Strategy changing is part and parcel with currency trading, but it shouldn’t be done in a live account during an actual trade.
Giving up too Quick
It can be sometimes tedious to keep expectations. You hear stories of different dollars being made on a single trade and you want some of the action. High expectations can lead to impatience. Impatience leads to moving from strategy to strategy, trying to find the huge profit trade. Strategies take some time to learn and then tweak – there is no “out of the box” solution that will make you a Successful Forex Trader in a day.
Trading without Protection
When a startup trader – or even an experienced Forex trader – is taking up a position, there should always be a protection order built into it. Trading without a protective order is like juggling machetes, it might work out perfectly, but it can also go way wrong. The market can afford to move against you longer than your margin collateral will last. You need to decide how much you are going to risk on any trade, and then stick to. (For more on this, check out Risk Management Basics for Forex Traders.)
Poking Holes in Your Protection
The temptation to move your stops to keep a position open is a direct product of the “waiting for the market to turn on” mindset. Moving stops and changing your trading policies.
Doing Too Much
Every currency pair is unique, as is every currency. It is not realistic to start trading all the majors at once, as each has its own economic values. Rather than looking to scale up trading strategy, startup traders need to focus on a handful of currency pairs and learn what drives them and how to profit from it.
Leverage is one of the side attractions of the Forex Trading. Leverage can take a few peeps in profit and turn it into a significant amount of money. Unfortunately, it can also magnify losses or result in you getting stopped out of a profitable trade before the trend is established
Whether you’re new to Forex or a veteran of different trading, these mistakes can sneak their way into your trading. Fortunately, many of these have easy fixes centering on discipline and preparation. If you come to the market equipped with a solid trading plan and the discipline to carry them out, you’ll be able to avoid most of these mistakes. As for the mistakes that occur despite your preparation and commitment, applying them and learning from them will have you well on the way to avoiding them in the future. (For more, check out Tips for Successful Forex Trading.)