Entering the Forex market can be intimidating. Most new traders, even full-time market participants, struggle at first to understand trading terminology or read market price patterns. Mistakes are a natural part of trading, and when they happen, you learn from them at the cost of your deposited funds.
Common trading mistakes are right there in the open, like going against the trend or disabling stop-loss alerts. But there are other, more complicated issues that can throw even experienced traders for a loop. These include making changes to the trading system too slowly, not noticing cumulative market changes, or not doing a good job with transaction statistics.
As a whole, all trading mistakes fall into four big categories:
- Technical analysis issues;
- Mistakes made in Fundamental analysis;
- Psychological mistakes;
- Money and risk mismanagement;
In order to make your journey into the world of trading as smooth as possible, we prepared a recipe for avoiding some of the most popular trading traps in each group.
- Getting into trading without a pre-planned strategy
To succeed as a professional trader, it is crucial to have a well-thought-out trading strategy. With a proper trading plan to stick to, you can reduce both the psychological and technical risks of Forex trading.
It is much better to have even a simple trading strategy ready, as long as it provides clear signals for opening and closing deals and takes general market behavior into account. Also, even if the trading process didn’t go as planned, the trading strategy can still be improved through continuous analysis. However, without a strategy, your trading decisions remain impulsive and fueled by emotions, which rarely lead to profits.
- Trading without practice
Luckily, even if you’ve just opened your first-ever trading account, there is a way for you to get a hand in trading before depositing actual, hard-earned funds.
When registering with most of the regulated Forex or CFD brokers, traders can open a trading demo account for free. These accounts utilize a virtual balance for trading. On the other hand, the platforms make trading tools, charts, signals, and quotes based on how the Forex market’s economy is doing at the time.
As you can see, a demo account is a perfect reproduction of a real account. There, you can use and test all trading strategies without worrying about software or technical differences and without risking any of your real money. The key thing is that a demo account places no duties on the trader; you can close it whenever you want or stop trading altogether, and the account will close on its own without any repercussions.
- Neglect stop-loss or take profit signals
These two are the most popular in the Forex world, and trading without them can quickly turn a profitable deal into a faulty one. Most of the time, new traders see signs of an upcoming price reversal in each change. However, sometimes the reversal doesn’t happen, and the whole deposit is lost.
Traders can avoid this by using a stop-loss order, which limits the amount of money they could lose and gives them time to plan their next moves.
The take-profit order is the same: once traders determine the level at which it is worthwhile to take profit, they remove the emotional component from their actions. Of course, missing out on additional profits is disappointing, but it is easier to deal with if you already have a set amount of earned money on deposit.
- Using too much leverage
When trading with leverage, you can make a good return with a small deposit or lose a lot of money if your trading position is too big or too small.
You have to figure out the size of the leverage based on your trading strategy, how you handle risk, and how you manage your money. When determining how much leverage to use in trading, you should first look at how volatile the market is on average, since leverage makes price changes much bigger. Experts advise beginners not to use leverage greater than x5.
- Trading within short time frames onlyÂ
It includes trading during the day and trying to close deals on hourly, 30-minute, 15-minute, or even 5-minute timeframes. Scalping, as one of the strategies, is a type of short-term trading that draws the attention of inexperienced market participants who want to trade and earn money on a daily basis.
Profitable scalping is undoubtedly possible with some experience. Yet, as leverage is required for tangible earnings, intraday trading carries considerable risks. Many false market signals can make it hard for a trader to keep his or her mind clear. This makes it likely that the trader will end up with a string of failed transactions.
- Poor control of your emotions
Getting emotionally involved in trading decisions is one of the most common mistakes in Forex trading. Emotional trading leads to impulsive asset purchases or sales, which is why many traders lose money. By sticking to a tried-and-true trading strategy, you can keep your emotions in check and keep your mind on your long-term goals.
- Neglect of Social trading
Newcomers to the Forex market or part-time traders can benefit greatly from the experience of seasoned traders by using Social and Copy trading.
Although frequently used interchangeably, Social trading and Copy trading are distinct but related concepts. Copy trading is a feature that allows traders to invest money in the strategies of more experienced traders (referred to as “strategy providers” on many platforms). Trading is done automatically, and profits and losses are calculated and credited to your account balance in proportion to your deposit. Minimum deposits to start Copy trading are pretty affordable with many reputable online brokers, so even beginner Forex traders can close trades at the same level of expertise as more experienced market players. They can also manage copied trades and close them manually if necessary.
Social trading, on the other hand, is a broader idea that lets users not only copy trades made by experts but also talk about trading strategies, ask questions, share market news, and act as a trading community in general.
To sum up, the Forex market is an interesting way to make money online that almost anyone can do with a small initial deposit. It is open and moving 24 hours a day, giving you many chances to make money.
However, with great opportunities come trading risks (especially for traders who do not have a proper strategy but have poor emotional control). So, as you learn more about trading and how to manage your time, think about some practical tips from professional traders to make sure your deals go through, improve your skills, and avoid making the most common trading mistakes.
