Applying the best strategy and observing the best practices may not always be enough to end up with a positive profit. To further guarantee continuous success, you also need to avoid certain pitfalls. Here are some of the Mistakes and Blunders which you should avoid while trading in the Forex market.
Read Also: Forex Trading: A Beginner’s Guide
Trading Without a Plan
It is true that you can be lucky enough and make a few profits by merely trading currencies at random; however, if you are serious about making continuous profits, then you should have a plan. A common mistake committed by beginners is that they make a plan during the trade. This is wrong. Instead, you should develop your plan prior to making any trade.
Your plan will serve as the structure of your overall trade. As much as possible, you should stick to the plan. However, you are also free to modify it along the way. Just be sure that any changes that you make to your original plan should be reasonable.
When you set a plan, you should have a short-term plan and a long-term plan. Part of your plan should involve setting your objectives, such as how much you want to make on a particular trade.
Chasing After Your Losses
One of the most common mistakes committed by beginners is chasing after one’s losses. The reason is that this approach usually ends up exhausting all the money in your account.
Many people know that it is wrong to chase after their losses; however, a good number of beginners still fall for this. The key to prevent this from happening is to have a better understanding of what it means to chase after your losses.
Chasing after your losses usually takes place right after you encounter a bad loss. The tendency is to suddenly increase the amount that you invest per trade to recover your losses, plus some profit. After all, you have already exerted so much time and effort. However, when you do this, you suddenly take an aggressive strategy where you invest amounts that are difficult for your bankroll to handle. For example, instead of just using 1%-2% per trade, you suddenly increase it to about 10% per trade, or even more.
It is true that by increasing the amount that you place in investments the higher will be the potential return. However, do not forget the truth that doing so also increases your risk. Also, the sudden change of strategy can jeopardize your overall plan.
Instead of chasing after your losses, you should focus on developing your strategy to increase your rate of success. Of course, some people get lucky and make a good amount of profit when they chase their losses. However, this is a very risky approach, and if you continue to do this, the chances are that you will only have more losses in the long run.
Aggressive Trades
Especially if you are a beginner, being aggressive is not recommended. In fact, most professional and successful FX traders only invest just around 1% of their overall bankroll per trade. As a beginner, it is all the more reason why you should be conservative. Also, if you are just starting out as a trader, your first objective should not be focused on making money right away.
Instead, your objectives should be to test the water, get a feel of trading in a real market situation, and come up with a reliable strategy that you can use to make a profit. Hence. It is strongly advised that you start out small regardless of how much money you have in your account. If your broker offers a demo account (which it should), then you should take advantage of it as well.
Emotional Trader
Do not be an emotional trader. Take note that the forex market does not care about you and how you feel. It continues to move regardless of whether you continuously make a profit or not. It simply does not care about you and anyone else and feels like nothing. Therefore, even though it is good to have passion for what you do as a trader, it is not good to allow your emotions to cloud your judgment and your decision-making process. Be as objective as possible. Make decisions based on facts, and never allow your emotions to take control of how you trade.
Wrong Understanding of Volatility
Many people think of volatility as something that is balanced. This means that if there is a significant increase in value, then it will soon be followed by a drop in value. In other words, even though the price continuously changes, the upswing and the downswing tend to even out in the long run. This is a wrong understanding of volatility.
Volatility in the forex market is much more challenging. It is not uncommon for a decrease in price to be followed by another significant drop in price, and another. In the same way, an increase in price can again be followed by another significant increase and another. Many things can happen, and there are many factors that can affect the prices of the different prices of currencies in the forex market.
However, it is worth noting that volatility can be predicted, or at least you can increase your chances of making the right prediction as to the future direction of certain currencies in the market. After all, there is always a reason for every movement that you see in the price of any currency. However, it simply becomes more challenging to predict because:
- There are many factors to consider.
- Many of these factors are not in our hands.
- Some of these factors can be unforeseeable.
- Some of these factors are not quantifiable.
- You are dealing with a live and moving market.
The good news is that if you continue to work and develop a winning strategy, you can increase your chances of making a profit significantly. Unlike gambling in a casino, the movements of the prices of different currencies do not happen at random. There are factors that you can measure or at least take note of.
Trading Currencies as a Hobby
There is nothing wrong with trading currencies as a hobby. However, if you do, then do not expect to make a profit out of it. Professional traders who successfully turn the forex market into a goldmine invest serious time and effort in every trade. They do not take the forex market as a place to exercise some hobby but as a serious business. If you continue to deal with the forex market as a mere hobby, then there is a big chance that you will only lose your money in the long run.
If you know that you cannot dedicate enough time to research and study the different currencies, the best way is for you to only make fewer trades. The important thing is that every trade that you make is heavily back up with sufficient research and analysis. After all, you are not compelled to buy and sell currencies. Instead of just considering this activity as a mere hobby, take it seriously and work on it part-time by doing fewer trades.
Accepting The Bonus Money
Brokers often offer promos and bonuses. It is not uncommon to find bonuses that will offer to double or even triple the amount of your deposit. Although this may seem like an attractive offer, sometimes it is best to just ignore it. The reason is that such a bonus always comes with a catch. After all, no one in his right mind will offer to double your money for no reason. It is simply too good to be true. The catch is that as a consequence of accepting the bonus, you will have to trade usually around 40 times the bonus amount, or even higher.
The problem here is that before you even satisfy the requirement, you will most likely lose all the money in your account. What if you do not meet the requirement? If you do not satisfy the requirement, then you cannot withdraw your money. This is the biggest problem. You will have your money locked in your account, and you will have to risk too much to get a chance of withdrawing it. Hence, many professional brokers do not accept the bonus offer by a broker.
Before you decide whether to accept the bonus or not, you should first examine the terms and conditions of accepting it. In case of doubt, don’t hesitate to contact the support facility. Just keep in mind that if the promo or bonus is too good to be true, then it is most probably is.
Going All In
Sometimes it is easy to get too frustrated that you just want to go all in one trade. This usually happens after you encounter a bad loss or a series of losing trades. Many traders just give up and want to end it that they simply gamble with all that they have and hope for a favorable outcome.
Although there is still a chance for you to make money when you go all in, this is the most aggressive approach and is not recommended. Take note that there are trades that are simply impossible to predict, especially when unforeseeable things occur. Also, going all-in is often a sign of frustration. Whether the outcome is favorable or not, there is almost nothing new for you to learn. Instead of going all in, you should take your time. In fact, take a break. Once you are calm enough, then you should work on developing your strategy.
True Professional forex traders do not go all in. In fact, they are often very conservative. Of course, you are still free to take this approach if you want, but the risk is simply too high. Although this approach does not guarantee that the trade will end up in a loss, there are good reasons to believe that this approach will end up with a negative return in the long run. Again, instead of going all in, just take a break and put your focus on improving your trading strategy.
