Updated: Sep 9, 2019
The forex trading market can be ruthless for traders who venture into it without a strategy. Every year, it is estimated that up to 96% of forex traders make losses. This is due to small mistakes that could be easily avoided with the right information. Indeed, information is key when trying to venture into the trading market. It does not matter whether you are a seasoned trader either, making mistakes repetitively can cost you your business.
Most traders cannot easily identify habits that can lead to their failure. The following is a breakdown of some of the most common forex mistakes as well as how to avoid them.
1. Lack of a risk management plan
This is possibly the most common mistake that beginners make. Even after going through the different trading strategies and coming up with a trading plan, most traders simply forget to come up with a risk management strategy.
Unfortunately, it is not possible to make money by just following the advice given by advisors. It is also important to have safety guarantees. The forex trading market is quite volatile and even skilled traders have to manage their risks. Fortunately, tools are available to manage risks and this mistake can be avoided easily.
Another major mistake that enthusiastic traders make is getting addicted to trading. The market can be very enticing when it is profitable. This makes many traders get addicted to overtrading. Even with the best forex trading system though, overtrading is never a good option. The market can change drastically and result in huge losses. To avoid overtrading, you need to come up with a proper guideline that dictates when you trade and how you will trade.
3. Trading without education
Education is crucial for any trader that wants to be successful. Many critical aspects of trading can only be learned through proper training. The trading market is always changing and always growing. The average trading volume today stands at around 5.1 trillion. This number is largely composed of banks.
Unfortunately, a large number of retail traders ignore the training aspect and go straight into trading. This makes them culpable of making costly trading errors. It is not difficult to get a good training before trading. Many online platforms offer courses for traders. You should ensure that you are properly educated before trading to have a fruitful trading journey.
4. Having unrealistic goals
Traders also tend to create unrealistic goals. Goals that particularly focus on the money instead of the process can prove to be futile. As attractive as the money in the forex market is, the goal of every trader should be on setting realistic goals that mark their prospects. Realistic goals are key to allowing you to focus on the right trading strategies. Proper goals also limit you from overtrading and making other mistakes that can be costly. When making your trading goals, put into account the funds you have and the strategies you intend to use.
5. Misusing leverage
It is estimated that the small number of successful retail traders make up only 12% of day traders. These are skilled traders who have mastered the use of leverage. The forex market is among those that offer traders a good amount of leverage. Beginner traders tend to get excited by the prospect of leverage and end up misusing it. Even though high levels of leverage are accorded to you, the goal should not be to maximize all the time. Instead, leverage should be used in moderation. It is crucial to note that leverage can lead to huge losses and career loss. To avoid misusing leverage, you need to decide on your trading plan beforehand.
6. Trading with emotion
Lastly, a lot of traders tend to put their heart into the trade and this can be a terrible mistake. With forex trading being such a volatile affair, you cannot afford to trade with passion. 80% of traders leave the market every year due to frustration. Logic is the only tactic that can allow you to beat the market. The market can be very misleading as the signals move in unexpected directions frequently. An astute trader should thus have the right balance of logic and patience to succeed.