For a Forex trader, mistakes are an inevitable part of the learning process if you already know how to learn from each one. If you keep repeating your mistakes over and over, then you’re not making progress, and probably big losses will follow. The first step to learn from your mistakes is to identify them. Once you identify the mistakes, you have to admit you alone are responsible for your trading mistakes and responsible for their outcomes.
Whether you are a professional or beginner Forex trader, you will have your own mistakes to make. But being aware of your errors can help you become more efficient in forex trading.
So, what are the top common trading mistakes you should avoid?
Trading without a Strategy
When you trade without a clear strategy, you’re basically gambling. Forex trading doesn’t work that way. To make profits, you need to develop a trading strategy to keep consistency. A trading strategy is predefined guidelines and approaches to stick to in every trade. A strategy will help you determine when to enter a trade, how to exit an unsuccessful trade, and how much to risk. Without this knowledge, a Forex trader will definitely lose.
“Fail to plan and you plan to fail”- Benjamin Franklin.
No Risk or Money Management Plan
Without a risk management plan, you risk losing everything. If you keep your losses limited, by minimizing the impact of potential risks, you will be able to stay in the market for a long time. A risk management plan helps you identify how much money you will risk per trade. If you exceed that amount, then you have violated your discipline. Stick to the 1% common risk rate per trade. Never underestimate the importance of this step. You can also consider a positive risk-to-reward ratio of 1:2, another rule that is being overlooked by many traders. This rule means that potential profit should be at least double the potential loss on the trade.
Risking More than You Can Afford by Over-leveraging
Leverage is an investment strategy of using borrowed capital as a funding source to maximize profits. It is very common in forex trading. While this feature holds greater profit potential, the possibility of enhanced loss is real. The leverage magnifies both profits and losses, so managing the amount of leverage is a key rule to stick to. As a Forex trader, you’ll need to educate yourself about margin and leverage to avoid putting more capital at risk than you had planned.
“Don’t focus on making money, focus on protecting what you have.” – Paul Tudor Jones.
Lacking Trading necessary Education
Knowledge is a vital tool to success in forex trading. Like any other investment, educating yourself about the market you’re putting your money in and how you can profit and avoid losing is inescapable. Getting proper forex education is your first step to succeed. Get to know how forex works; trading tools, currencies pairs and price action. Never put your money in a place you don’t know how it exactly works. Remember that basic market knowledge is essential at the begging, but what you learn along the way makes the difference. You can never stop learning in such a dynamic and fast changing market.
Taking trading decisions based on emotions; like greed or fear, is the main reason why so many people lose. Being controlled by emotions makes you more vulnerable and increases your risk exposure. The best way to avoid this mistake is to develop a stable trading mindset backed by a trading strategy that you strictly follow.
Trading with Untrusted Broker
Choosing an untrusted broker is another mistake that many traders make. Some traders get blinded by huge forex bonus offers and high leverages that they do not pay much attention to check trading conditions offered by the broker. Reliability and regulation are essential before opening an account with a broker. So, make sure to choose a reliable broker with a comfortable MT4 platform and smooth execution.
Trading mistakes are inevitable, especially for those who are entering the market for the first time. However, being aware of the common mistakes will help you prepare better and minimize your errors and boost your profits.
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