Of all the mistakes made in the forex market, human error takes up the biggest percentage. Often these mistakes are synonymous with novice traders. Nevertheless, understanding these mistakes forms the foundation of a successful trader because you’ll be able to manage risks associated with trading.
Before diving into the forex market, take a look at these common mistakes and evade them as best as you can.
1. Poor Research
Proper and extensive research is vital for any forex trader. This will help you identify market trends which can affect future prices and thus influence your decision. In addition, the research incorporates entry and exit points at a particular point.
With such research, traders are able to understand the market forces and how they affect the pairs they intend on trading. Many beginners make the mistake of believing media-propagated advice without confirming or verifying their authenticity. However, it doesn’t mean you should ignore this advice altogether. Rather, run authenticity checks on them before using them.
2. Trading Based on Emotions
This is one of the most common mistakes affecting even the most experienced traders. You see, humans are emotional beings. This means emotions may sometimes cloud some judgments which lead to losses, in the case of forex trading.
Even worse is trying to make up for the losses in what is known as chasing trades. This happens when a trader makes a loss and tries to recoup it by making another trade. It ends up as bad as the last and the chain continues, later leading to a lost portfolio. It’s up to you to separate emotions from business.
3. Trading Without a Plan
Having a plan is critical when trading the markets. It’s similar to having a blueprint to a building or a map when traveling. Both will guide you through the entire process to avoid getting lost. The same applies when trading the forex market or any other market for that matter.
Beginners who do this tend to make unfounded decisions which eventually leads to devastating losses. Instead, come up with a strategy which will ensure you remain consistent with your trades. This will allow you to develop a trading style.
It’s also worth mentioning that as you learn how to trade the market, you should also test the strategies on a demo account. Once comfortable, you can transition to a real account.
4. Varying Trade Sizes
Your trade size will always affect your trade, although this will depend on the money in the account. By trading using inconsistent sizes, you risk losing your portfolio. According to trading experts, you shouldn’t risk more than 2 percent of your account size. For instance, if you have $5,000, then your maximum risk will be $100 for every trade.
By observing this simple rule, traders can avoid overexposing their accounts, thus eliminating the risk of losing their portfolio.
Trading the forex market requires planning and strategizing. This means you have to take the time to understand the ins and outs of the forex market. It’s also worth mentioning that losses are inevitable. However, managing them is what makes the difference between success and failure.