Traders across the globe love the Forex market around the world for various reasons. With more than $5 trillion traded every day, it is open round the clock 5 days a week. It is a stable market for brokers to leverage trades and liquid enough for traders to profit from the dynamic exchange rates.
However, the market is also highly sophisticated and dynamic that witnesses changes on a daily basis due to multiple reasons, big or small. Traders who rush into the market without having proper knowledge about it end up making common Forex trading mistakes that cost them a dime. These mistakes can end up emptying their entire account, leaving them with nothing if the traders risk too much. It is imperative for them to resist temptation, have a solid risk management strategy and average out any critical position when possible. Only then, a Forex trader can sustain in the Forex market and make substantial gains.
Let us look at one of the biggest mistakes that Forex traders make during Forex trading:
Why Forex traders lose money also highly depends on the Forex trading plan traders build. Every Forex trader needs a trading plan, and more so, a well-researched one. Trading without a plan indeed leads to losses, so it is essential that you sit down and make a list of rules that you must follow as your trading guide. The strategy should also include money and time management strategies covering questions such as:
When should I enter a trade?
What is my trading motive?
What type of currency pairs am I going to focus on?
When should I exit the trade?
When to set a stop loss trade?
What is my risk capacity?
How much money can I risk on individual trades?
What is my total budget for trading?
Not many traders are aware of the advantages of a stop loss. A stop-loss order is an offsetting order that helps you in getting out of a trade if the price moves drastically against your specified amount. This prevents you from heavy losses. You take a large portion of the risk out of the investment by having a stop loss and only risk the amount that you can actually afford to lose in the future.
The Forex market is highly volatile depending on several factors. These factors are generally built on interconnected dynamics ranging from economics, politics and market fundamentals. All these facts converge and create opportunities and risks for the traders accordingly.
Potential gains lure traders to trade and risk more, but they often fail due to inadequate and inefficient research. This is how they lose money since they are not aware of the market conditions, the country's political instability, and economic conditions about the country of the currencies they are trading in.
To become a successful reader, one needs to read regularly, be aware of the ongoing conditions, and educate themselves about strategies that help one through potential market movements. Some critical areas one should know about are:
How are the interest rates of a country affecting a currency pair?
What is the economic condition of a country in terms of employment rate?
What are the technical indicators affecting your trade?
Is there a political mishappening in a country whose currency you are trading in?
Is the government going through a crisis whose currency you wish to trade-in?
What is the latest economic, financial and political news worldwide?
One of the grimmest mistakes a trader makes is averaging down instead of averaging up. They invest more money in a losing trade just in the hope of the trade reviving and turning good, without considering that not every falling currency pair will rise. The addition of more amounts in the bad trade elevates your losses. Holding onto such positions prevents you from shifting your capital to a more successful trade and instead leaves you with heavy losses.
Emotions are the most common thing that acts as a hurdle in any type of trading. It often leads to irrational and unsuccessful trading that results in losses. Emotional trading can occur due to a personal liking towards a particular country or currency, a decision made based on what your family member told you about the currency pair, or through anticipated conclusions, you make consciously or unconsciously about the currency pair.
Such trades have no educational backing and lack proper research, technically and fundamentally. It is imperative that you devise a trading plan and follow it to avoid emotional trading mistakes made by traders.
Every trader wishes to minimize losses and maximize profits. However, many dimmish returns by leaving a trade too quickly by taking little profits. No trader should hold onto a position for too long or exit too quickly, as that prevents them from potential gains.
Exiting quickly every time saps your earning potential, and they miss out on gains. This can be due to fear in the trader's mind or greed, forbidding them from evaluation rationally. A clear and well-thought trading plan is the only thing that can help traders from making this mistake.
Risking more than one can afford is a common Forex trading mistake that traders make. The Forex market looks alluring to new traders, and little gains make them greedy to invest and risk more. However, this leads to heavier losses in the future when there is a negative impact on the currency. A higher risk means greater chances of the entire Forex account getting emptied in one go, leaving the trader with nothing. Setting a maximum percentage of their total capital that they can risk is an excellent strategy to ensure that you do not risk more than you can handle.
Directly jumping into the Forex trade is a risky affair. Before you trade your real hard-earned money, it is intelligent to open a Forex practice account. You can cause the virtual funds to try trading plans and strategies, understand how the market works and the strategies that work the best for you. This way, you also get a hands-on feel about the trading platform. This gives you a chance to see how you react to trades that do not do good and learn from your mistakes so that when you invest your actual hard-earned money, you minimize your losses.
Everybody makes mistakes, especially beginners. It is okay to make a few mistakes, but it is imperative that you learn from them and do not repeat them. A trader needs to be aware of these common mistakes as that will help them prepare better, minimize errors and reduce losses. This also allows the trader to boost their returns when they already know their mistakes and act accordingly. If you are interested to learn more about Forex trading and the platform, our Forex trading platform teaches you everything with practical implications and real-time monitoring of the funds!
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