When you’re new to Forex Trading, it is almost inevitable that you are going to make mistakes.
The reason for your mistakes could be either due to a lack of concentration and focus, it could be due to revenge trading, it could even be due to completely dropping your strategy and trying to profit by jumping into the market, because you had a ‘feeling’ the market will go in your favour (and of course it did not).
But we also know that these trading mistakes (and others), are not just made by newbies but can also be made by experienced traders.
So, in this article I want to share with you what I have found to be the 7 most common Forex Trading mistakes and how to avoid them. Ready? Let’s go!
1. Trading without a STOP Loss
Yep, believe it or not there are some traders who actually make the (insane!) mistake of trading without a Stop Loss. These types of traders are viewing trading in a completely incorrect way, and viewing it more as a get rich quick scheme or a gamble.
The clue is in the name, a Stop Loss is there to limit your losses. Trading is all about preserving your capital first, and making a profit second. When I see a potential trade set up, the first thing I do before I check my Target or even my Entry, is check to see where will my Stop Loss go, it is the first thing I check.
The Stop Loss should be placed, where you believe Price will not go if your analysis of Price Action is to remain valid.
2. Trading without a Money Management Plan
This point follows on nicely from the previous point, It is about limiting your losses and being smart with the money that you are risking. A Money Management Plan, is put into place to not only preserve your capital but also to project how much you can earn, all according to a multitude of factors such as risk, account balance, trading style/strategy.
Trading without a Money Management Plan, is a bit like driving along on a dark road without your headlights on. How can you get to your destination, if you can’t see where you’re going? Be smart, stop trading focus on building a solid plan first, trust me you will thank me for it.
3. Ignoring/Being unaware of Global Economic News
Trading Forex without keeping an eye on the fundamental aspect of trading, is very dangerous indeed. Some global news events are enough to move the market by 50 points, even 100 points. For example, you might see a great trade set up on the EUR/USD, but have no idea that in the next hour the Non Farm Payrolls are due to come out. You enter the trade unaware, and the trade moves against you in a matter of seconds.
You can check out our Economic Calendar, to stay up to date with all the major economic news. Also, see our lesson on Fundamental Analysis to learn how to analyse the Global Economic News.
4. Revenge Trading
Revenge Trading is defined as entering trades that are not thought out at all, and are entered purely based upon trying to regain lost capital. As a trader, your aim is NOT to win every trade. It is to make more money than you lose, simple.
Continuing to Revenge Trade will deplete your Trading account very quickly, the point is you can not win every trade. You will have losses, and it is your trading psychology and plan that will keep you going through your losses.
Traders that over-trade seem to think that the more trades they are involved in, the more chance they have of making money. Remember what we touched upon earlier on? Trading is about protecting your capital first, and making a profit second.
Every time you enter a trade you are exposing your capital to risk, the more trades you open the more your overall capital is at risk. Instead of over-trading, focus on taking the best possible trading opportunities.
So, these are what we have personally found to be the common Forex Trading mistakes. Be smart, avoid them!