Can you remember what are the most common Forex trading mistakes made by you as a newbie? Every trader has gone through this stage and learnt from their mistakes. If you intend to start trading Forex, you better read on to avoid these mistakes. Sometimes, it is easy to say but hard to actually implement. I think it still depend on each individual’s mentality.
From what I found out from many forum discussion, these are some of the common trading mistakes that are most probably made by beginners. Some of the experienced traders can be prone to the same mistakes as well.
Lack of patience
Many beginners thought that trading Forex can be an easy way to earn money fast. After they have tried and won a few trades with a demo account. They quickly jump into a live account with real money. We can made some money in the beginning but in the long run we can lose all our winnings and suffer a loss. So, always be patient, learn the proper way of trading Forex and be sure that we are confidence with the trading plan that works in the demo account before we switch to a live account.
Another example is when placing our trades. Our analysis will not always be throwing up trading signals. Our trading plan may require us to wait for the right opportunity. Don’t be tempted to place some trades just for the sake of seeing some action. The successful Forex trader knows when to wait. Be patient!
Lack of discipline
Beginner traders just want to make money fast so they just do not know what discipline is. Discipline problems can be like not having a trading plan or strategy, not following their own trading plan or strategy, not setting targets, trading too much or trading too little, etc. Most of the time, the lack of discipline will lead to emotion. And emotion is not good for trading as it will affect some of our decision. To be a disciplined trader, follow my 25 rules of trading discipline.
Lack of market knowledge
It is a common mistake for beginners as they have insufficient knowledge of the selected currency pairs and how currencies can be influenced by global events, how the international financial markets interact, and how they correlate with each other, e.g. stocks, government bonds, commodities or Forex. This knowledge allows us to make better informed trading decisions when economic indicators are published. It is also important to identify the market that allows us to adjust our strategy and avoid the entry into negative trades. The more informed we are, the better our chances are to trade successfully.
Lack of risk management
As beginner, we might not understand what risk management is. I recalled that I just knew how to simply placed a trade, took profit or cut loss when my target are met. But usually, we held on to losing positions far too long thinking or hoping that the market will turn around. we also tend to exit winning positions far too early to take a small profit, which eliminates the opportunity for greater profits.
So, setting targets like stop-loss and profit target are very important to our trading. But, setting up them required some skill. For example, if we set our stop-loss orders too far away, we are having a far greater level of risk into our trading. Conversely, setting our stops too close might not be a good idea as our trades might close out on a minor move before our predicted trend occurs.
Risk management involves controlling our risk per trade to a level that is tolerable for us. A common rule is that a trader should risk (in terms of the difference between entry and stop price) no more than 1% of capital on any single trade. Professional traders will often risk far less than 1% of capital.
In summary, we need to learn from the above mistakes. We also need to build our knowledge through trading in order to build our confidence as a trader. Don’t commit too much of your capital until you have gained this experience. Build as you go along.
What other common mistakes that you think of sharing, then leave a comment below.