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Common Mistakes in Forex Trading and How to Avoid Them

When trading forex, just like any other business, you need to have a system and a strategy for every movement you make. Bad habits can put traders at a higher risk of losing their investment. Success in this industry derives from hard work, discipline, and long hours of work and study.

As traders, in order to achieve high profits, it is crucial to stick to an action plan and our own strategy. It is especially important to avoid making the following common mistakes:

  1. Trading Without a Plan

The majority of new traders tend to trade without a plan. Information they may hear on the news or opinions they hear from other people that may dictate their decisions without a deep analysis.

In general, new traders have good results on paper or in the demo, but when they switch to real currency they make mistakes. This is due to the action plan they follow. Either they fail to follow to it or even don’t have an action plan at all.

To be a successful trader, you need to design and create your own strategy. You can follow the steps below as a guidance:

  1. A strict method and strategy of entry and exit to the market.
  2. Determine the risk you are willing to take.
  3. Determine the actions to take when a trade goes in the opposite direction.
  4. Determine the actions to take when you are positive and when to exit.
  5. Know how much of the capital you will risk in the account per trade.
  6. After close a trade, either win or lose, always review and study the trade.
  1. Escalate Losses

When traders are experiencing losses, it is very common to start adding trades to that loss which will only damage your account more due to the lack of margin you will get. If a losing trade is increasing, take the loss and move on.

  1. Too Much Exposure

Another mistake traders make is directly linked to personality. We tend to have a lot of ego while we are becoming more and more successful and this can lead us in the opposite direction. Always increase size of your trades with a smart proportion. In the time that your account is growing, you can aim to win more, but if you increase the exposure, you will be risking more from your account which can lead you to a big loss.

  1. Risking Too Much in One Single Trade

At the beginning, most traders make the mistake of trying to make a large profit in a single trade by using excessive volume. By doing this it is possible to make large profits with small market movements, but it is also possible for an opposite outcome of large losses. The market moves from one moment to the next, and it can move against you. All it takes is just a few pips to cause a big loss in your account.

So do not risk too much of your margin in one single trade. Use a decent lot size and try to obtain consistent and real benefits.

  1. Lack of Patience

This is one of the most difficult things to achieve when trading; patience to sit up and closely watch the market, analyze and wait for the perfect entry. A lot of traders are desperate to get into the market and many times a day, they are constantly looking and stressing for that entry. If you analyze the market and you are sure of your trade, then you don’t have to worry and be stuck to your screen the entire day. Trust in yourself and be patient.

  1. Switching Strategy

This is perhaps the worst mistake a trader can make. Some traders are switching their strategies while they have open positions and in desperation, they attempt to try new strategies without even testing them on the demo beforehand. As stated before, it is crucial to stick to a plan and follow your own rules. You cannot expect to be successful in your trades if you don’t have a well set up action plan. Never modify your plan when you are trading. It is an an emotional decision and if you do this, it means you are not ready to trade with real currency.

Avoiding these common mistakes are the first steps to becoming a better trader. Set realistic goals and have the vision to become better step by step. There is no better place to do this than Tradeview as we offer the best platforms with the most competitive spreads in the forex industry.

Demar Ruiz
Business Developer
druiz@tvmarkets.com

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Tradeview Ltd. is not a portfolio manager or an investment advisor. This Market Report is for informational purposes only. Any statements made or opinions voiced in this Market Report do not constitute investment advice. The Tradeview Ltd. Market Report does not constitute a solicitation to buy or sell in the financial markets. Although the information contained in the Market Report comes from trusted sources, Tradeview Ltd. is not responsible for guaranteeing the accuracy, timeliness, completeness, or fitness of such sources. Tradeview Ltd. shall not be responsible for and disclaims all liability for any losses which may be suffered from access and use of the contents of the Tradeview Ltd. Market Report. Trading any financial instrument on margin, using leverage or otherwise involves considerable risk. Therefore, before deciding to participate in any style of trading, you should carefully consider your investment objectives, level of experience and risk appetite. Most importantly, do not invest money you cannot afford to lose. Consulting with your investment counselor, attorney, accountant or other professional upon whom you rely for guidance as to the appropriateness of an investment in any style of trading is recommended.

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