Common Forex Trading Mistakes
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:
1. Not having a well-researched trading plan
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?
2. Trading without a stop loss
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.
3. Inadequate research
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?
4. Hoping bad trades will turn good and continuing in the same trade
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.
5. Emotion-based trading
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.
6. Exiting from the trade too quick & missing out on considerable gains
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.
7. Risking more than your risk appetite
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.
8. Trading from scratch and going all-in at once
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!
What is Currency Correlation?
Currency correlations help trade multiple currencies in the forex market by identifying the market trends of each currency pair.
Price Action Trading Strategy
A Price Action Trading Strategy helps find ideal entry and exit points depending on expert opinions, news announcements, or technical indicators.
Average True Range
Average True Range (ATR) helps in identifying how much a currency pair price has fluctuated. This, in turn, helps traders confirm price levels at which they can enter or exit the market and place stop-loss orders according to the market volatility.
Moving Average Crossover
The Moving Average Crossover is a valuable tool to find the middle price-point of a trend in forex trading. When currency prices crossover their current moving averages, it helps traders identify the favorable buying or selling points for the currency.
What is the Bullish Engulfing Candlestick?
Bullish Engulfing Candlesticks helps in identifying an uptrend reversal in the market. This candlestick pattern stands out because a trader does not need to wait until the entire pattern is completed to enter a trade.
How To Trade The Gartley Pattern
The Gartley pattern helps identify price breakouts and signals where the currency pairs are headed. The pattern is also widely used in the forex market to determine strong support and resistance levels.
How to Trade Forex With NFP V-Shaped Reversal
A Non Farm Payroll (NFP) V-shaped reversal refers to a sudden increase or decrease in the currency pair prices right after an NFP report is released.
Candlestick Patterns: Top Candlestick Charts Every Trader Should Know
Candlestick patterns depict the price movement of assets in a graphical manner. Candlestick patterns also enable traders to predict market behaviour.
What is the Evening Star Candlestick Pattern?
Evening Star Candlestick Patterns help traders identify ideal exit levels in the forex market by signalling a slowed upward momentum and strengthened downward momentum.
How to Use Ichimoku Cloud in Forex?
The Ichimoku Cloud provides a clear market trend direction to the traders and helps them make market decisions accordingly.
Pennants Pattern: How to trade bearish and bullish pennants
Pennant Patterns work as a continuation signal in the forex market and help identify the ideal entry and exit price points
How to Trade Forex With Renko Charts
Renko Chart is a technical indicator that provides strong market trend directions by filtering out minor price movements
What are Ascending and Descending Triangle Patterns?
The Ascending and Descending Triangle Patterns confirm continued trends in the forex market.
How to Identify Cup and Handle Pattern in Forex Trading
The Cup and Handle Pattern is a technical price chart that forms the shape of a Cup and a Handle, which indicates a bullish reversal signal.
What is the Head and Shoulders pattern?
The Head and Shoulders pattern is a trend reversal indicator that predicts bullish to bearish and bearish to bullish reversals in the forex market.
What is the Hammer Candlestick Pattern?
Hammer Candlesticks enable traders to identify potential market reversal points, determine the ideal time to enter the market and place buy or sell orders accordingly.
What is The Opening Range Breakout Strategy
The Opening Range Breakout (ORB) Strategy involves taking forex positions when the currency pair prices break below or above the previous day's high or low
Morning Star Indicator
The Morning Star Indicator helps identify strong trend reversals in the forex market and enables you to take trade position entry decisions accordingly.
Stochastic Indicator is used in Forex to identify overbought and oversold market conditions that substantially lead to market reversals.
Favourite Fib Fibonacci Retracement
Fibonacci retracement strategies help traders identify the market's support and resistance levels, trend reversal points, and entry and exit decisions.
Heikin Ashi Candlestick Pattern
The Heikin Ashi Candlestick pattern is almost the same as the traditional candlesticks, with one big difference—the former is an averaged out version of the latter.
Multiple Time Frame Analysis in Forex
By monitoring different currency pairs in different time frames, you can make your Forex trades more successful and profitable.
What are Bollinger Bands?
The Bollinger bands can help identify overbought and oversold market conditions, protecting you against placing any orders that could lead to losses.
Andrew's Pitchfork Trading Strategy
Andrew's Pitchfork is a Forex trading strategy that can predict protracted market swings and help you in identifying potential market trends that can indicate potential exit and entry points.
Fibonacci retracements are one of the most popular methods for predicting currency prices in the Forex market. Predicting upward or downward market movement can help traders with accurate price analysis for exiting or entering the market.
Trading in Volatile Markets
Forex volatility is the measure of how frequently a currency's value changes. A currency either has high volatility or low volatility depending on how much its value deviates from its average value.
The ABCD pattern
One of the most classic chart patterns, the Forex ABCD pattern represents the perfect harmony between price and time.
The Bearish Gartley Pattern
The Bearish Gartley pattern was introduced in 1935, by H.M. Gartley in his book, “Profits in the Stock Market”. The pattern helps Forex traders in identifying higher probabilities of selling opportunities.
The Bullish 3 Drive pattern
The Bullish Three Drive pattern in Forex trading is a rare pattern that gives traders information about the Forex market's potential at its most Bearish point, and in turn, suggests probabilities for a market reversal.
What is the MACD Indicator?
The Moving Average Convergence Divergence (MACD) indicator helps traders quickly identify short-term trend directions and reversals in the forex markets. You can use the MACD indicator to determine a currency pair price trend's severity and measure its price's momentum and even identify the bearish and bullish movements in the currency pair prices.
Guide to Forex
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