Trading forex is a skill that takes a lot of time and practice to master, although, there is no way to ever completely eliminate the risks associated with trading. And let’s be honest, it’s the risk that makes it so exciting to trade in the first place.
With that said, there are many common mistakes that beginners tend to do when trading forex, and the more of them you can avoid, the higher your chance of succeeding will be.
Therefore, we thought we’d share some of the most common forex trading mistakes.
Lack of knowledge and practice
When people first start trading, they tend to be excited and eager to start but diving head first into trading is rarely a good idea. Instead, you need to take the time to study the market, learn how forex trading works, and master a few basic trading strategies.
By doing so, you will substantially decrease the risk of unnecessary losses, and it will set you up for a better trading journey.
Luckily, it has never been easier to find great, and often free, online resources where one can learn how to trade forex. In fact, there is such an abundance of trading knowledge available online that you really have no excuse as to why you wouldn’t study before you start trading.
One of the most common and treacherous mistakes that beginners make is chasing losses. Some might argue and say that the most valuable trading skill to acquire is the ability to keep your head in the game without letting your emotions take over.
Losses are an inevitable part of trading for everyone, and you need to be able to accept when it’s time to cut your losses and move on to the next trade.
Not implementing a strategy
If you decide to trade without a strategy, you might as well go play on a Wheel of Fortune. Trading isn’t supposed to be a guessing game and trading “blindly” without a strategy is completely useless.
Now, trading strategies come in different shapes and levels of difficulty, and there are several basic strategies that beginners can learn in order to improve their chances of making a profit.
For some reason, many beginners seem to ignore the stop-loss feature offered by any serious broker, and that’s a major mistake.
Activating a stop-loss is often as easy as a few clicks, and it’s also one of the easiest ways to avoid substantial losses.
Underestimating the power of margin and l
Using margin and leverage when trading is a double-edged sword. On one hand, leverage can help improve your profits, and it allows you to trade on even the smallest market movements. On the other hand, leverage can increase your losses at a rapid pace.
Learning how to correctly use leverage for one’s benefit is one of the most important lessons for new traders.
Keeping all Eggs in one basket
Diversification is not only a good way to protect yourself, but it’s a necessity that should be practiced by all traders. Instead of focusing all your energy on one or two currency pairs, it’s better to spread your efforts out over several pairs of different sizes, i.e. majors, minors, and exotics.
That being said, you shouldn’t spread yourself too thin either. It’s best to try and find a sweet spot where you’re able to correctly analyze the assets you’re interested in without overwhelming yourself.
Not calculating taxes
Lastly, we have to encourage everyone to include taxes in the equation from the start. In most areas of the world, forex trading is taxed, and it’s your obligation to know what you own the government.
It’s also important to understand that all your profits aren’t necessarily yours so that you separate your money from taxes.
The bottom line
Forex trading can be very entertaining and even profitable for some, but it has to be done the right way. Careless trading is never a good idea, and the more you know, the higher your chances of succeeding gets.
Hopefully, the above-mentioned tips can help you become a better trader, and more importantly, help you avoid costly mistakes.