There is no shortage of human errors in the forex market, especially if you take into account the common trading mistakes that are infamous on different trading platforms. Naturally, it’s beginners that fall the most into the common pitfalls of forex trading. While a lot of errors may not be critical in certain situations, traders must understand that falling into these errors can start snowballing until it reaches complete chaos. Being successful in forex doesn’t necessarily mean that you have to earn a lot on one or two trades, but rather have the ability to bring in consistent profit through careful strategizing.
Improvising without a Plan
One of the most common pitfalls in forex is not having a plan. A trading plan is an essential element in any successful trader’s repertoire. If you are not following a plan, you are leaving room for a lot of inconsistencies that can pile up over time. Since forex trading can easily become emotional, the only safeguard you can have as a trader is a trading plan. The last place you want to find yourself in is uncharted territory where you are not sure of the decisions you can make. Naturally, increasing the number of variables and unfamiliar environments is bound to make you make a mistake easily. It’s recommended to use demo accounts to practice your trading plans until you are confident in their effect and outcome.
Getting into Multiple Markets
As a beginner, it’s often easy to find yourself stretching yourself too thin between all the available markets. Due to the vastness of forex markets, you may find yourself convinced that you should try to take a piece from every pie on the table. You might want to stop yourself early enough if you want to be a successful trader because the few the markets you trade on, the better you become at trading, in general.
Many successful traders prefer the usage of forex signals. If you want to know what the best forex signals are, you need to understand how they should work. Research can be done by professionals or automated systems that suggest the best investment in a certain market. The lack of understanding of a certain market can net you great losses and unnecessary risks that could’ve been avoided if you had become proficient enough in one or two markets first. Irrational trading can cause traders to open positions without giving it a second thought because they’ll be too busy trying to keep their momentum up. This happens in different industries and not just the forex market, such as the cryptocurrency market.
Overconfidence in Leverage
A lot of traders may feel quite attracted to the high leverages or margins that forex brokers offer. The leveraging feature allows a trader to magnify their capital as they make trades, but what they always forget to account for is the increased risk. You need to remember that you are not trying to gamble your way into forex trading, which is the worst strategy any trader can apply. You’ll notice that most successful traders trade using reasonable leverages that don’t cut into their pockets deep enough to hurt. Brokers enjoy advertising high leverages because they can attract a lot of people, but the key is to always remember that you are trying to be consistent rather than a one-hit-wonder. Some regulatory bodies put a cap on the leverage multiplier to help people from making grave mistakes.
You always want to keep your ego away from your trades. It’s not uncommon for traders to actually double down when they start feeling a trade slipping away, in hope that the market will suddenly shift towards their favorable direction, which seldom happens. While it may sound quite intuitive and full of common sense, beginners can sometimes become blinded by their loss and start adding more to an already losing trade. Some traders may try to push the Stop Loss for a bit to ensure that they at least break even, which can still make the situation worse.
Improper Risk Management
Investing and trading in forex requires a serious risk management strategy that isn’t lenient at the corners. Getting tunnel vision during trades is more popular than you’d think. The target that you have in mind can keep getting further as you desperately try to reach it by blinding your eyes to reality. Not managing the risks can mean that you will start financially bleeding until the situation becomes critical. If you truly want to stay in this market long enough to make a profit, you need to always limit the type of risks you take, no matter how adventurous you’re feeling.
While we are not robots, trading still requires a very level-headed style of operation that is based on the nullification of emotions as much as possible. Since you are not betting on your favorite football club, you need to make sure that you keep emotions out of any forex trade and only focus on the numbers. Trades that aren’t based upon technical or academic styles are bound to fail you in the long run. You’ll notice that many beginner traders open up more positions as they try to make up for their losses. Instead of rushing to the next big trade, take enough time to stop and see what went wrong so you could do a better trade next time.
Lack of Monitoring
As a new forex trader, you may find that you are losing more than you’re winning for reasons that you can’t quite wrap your head around. This usually happens because you’ve fallen into a looping pattern of mistakes that you are unaware of. The best way out of this problem is to create a trading journal that can help you identify where you’ve gone wrong in every trade. It may not be helpful with a few entries, so you might want to make sure that you’re recording every trade, whether it’s successful or not.
Forex trading is a truly vast market that has a lot of variables and forces at play. There is no doubt that the learning curve of Forex can be steep for many people. Similar to other trading industries, staying up to date on the newest variations and strategies is essential if you want to make consistent profits.