Common Forex Trading Mistakes You Should Avoid | Inveslo
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11 May @ 11:03

Six Common Trading Mistakes You Should Avoid

Few traders succeed among many people who attempt to trade the financial markets. While all traders make even these few. However, to succeed in the financial market, one must be able to learn from their mistakes and avoid repeating them in the future. 

Among the few differences between successful and unsuccessful traders is the ability to recognize and avoid the common mistakes most traders make. By the end of this article, you will have identified eight of the most common forex trading mistakes that need to be avoided.

1. Insufficient education

In the world of financial markets, there are many subtle and significant differences between the various markets and instruments involved. A mistake beginners make is not carefully educating themselves before starting out their fx trading journey.

It is a sure-fire way to set yourself up for failure if you trade without proper education. Using the Internet, beginners can easily access a vast amount of material that teaches them how to start forex trading.

There's no reason not to take advantage of all the information at your fingertips and educate yourself about your chosen market and how to trade it.

2. Trading without a plan

Traders can also make the mistake of starting to trade without developing a trading plan prior to actually getting started. 

Traders who are just getting started are often too eager to jump right in and start making trades without planning in advance. This can be a big mistake. You must maintain discipline and stick to your trading strategy if you want to be a successful trader. This, unfortunately, isn't accessible if you don't have a comprehensive plan.

So, how do you build a trading plan?

It is imperative to ask yourself, why are you trading in the first place? What's your purpose? Do you just want to pass the evenings, or are you ready to embark on a new career? Clarifying your trading goals will help shape your trading plan, which should answer questions such as:

  • As a trader, what will your style of trading be?
  • How many hours do you think you will devote to your trading?
  • Do you have any requirements for entering and exiting the markets?
  • If so, how much profit will you aim for per trade?
  • How much risk will you take per trade?
  • Are there any limits to the maximum amount you will be willing to lose?

Ensure you write down your answers and follow them once your trading plan is completed!

3. Trading without a journal

The following mistake is not apparent to many beginning traders. Still, it is an essential step in becoming a better trader.

You need to keep track of both your good and bad trades, and the more details you record, the better it will be for you in the future. Some of the questions you should consider are:

  • What time did the trade occur?
  • At what time was it exited?
  • Which instrument have you traded?
  • For what reason did you enter it? Describe your reasoning.
  • Which result did your trade obtain? And what do you think about it?
  • Was there anything you might have done differently?

By keeping a detailed trading journal, you will be able to learn not only from your mistakes but also from your successes, helping you develop your trading skills and fine-tune your trading strategy.

4. Being ruled by your emotions

It is pretty normal to experience a rollercoaster effect of emotions when trading, including fear, greed, ecstasy, grief, and anger. Part of becoming a successful trader is learning how to control these emotions.

There is no way to completely or even partially erase all your emotions from your mind, and you wouldn't even want to try. There are times when you need to be cautious when trading. Likewise, there are times when you need to feel the satisfaction of a successful trade.

But one of the biggest mistakes you can make when trading forex is to allow your emotions to control what you think and what you do. Suppose you have a clearly defined trading plan. In that case, you will have the ability to maintain your self-discipline in such situations.

Your fear shouldn't cause you to miss out on a great trade, and your greed shouldn't force you to enter the market when you shouldn't. You should always approach every trade rationally.

Before entering the market, you should ask: Does this trade comply with my trading plan and strategy? Or am I propelled by emotion?

5. Risking Too Much on each trade

It may seem obvious, but a surprising number of traders make this mistake.

For many traders, the possibility of that big win lures them into taking on a large position to give them the chance of that big win. Making this can be a very costly mistake if you are a beginner at trading.

Even if you are confident about a position, markets can be unpredictable. It is always possible for them to turn against our trades. In the event that you lose a significant portion of your trading capital in one particular trade, it could severely affect your future chances of earning money. In addition, the psychological impact can last for a long time.

Never risk too much of your trading account balance on a single trade. Always be aware of your position size.

6. Revenge trading and overconfidence

Many traders make this mistake when they allow their emotions to take control. Because these scenarios happen so frequently, we have decided to dedicate an entire section to them.

Suppose you have had a few successful trades. In that case, it is easy and natural to fall into the trap of feeling too confident in your ability. When you feel elated after winning trades, you may deviate from your trading strategy or enter the market without sufficient analysis.

It's a mistake to think winning a few trades makes you invincible!

Revenge trading is on the other end of the spectrum of trading mistakes. It is again a perfectly natural temptation but should not be squandered.

Revenge trading refers to the desire to get back into the market immediately after experiencing a loss in order to recoup your lost capital. It is a risky gamble to overestimate one's trading skills after a successful trade and to revenge trade after an unsuccessful one. The result is that one often loses more.

You should remain objective when playing the market. Often, after a string of losses, taking a step back and analyzing what went wrong is the best thing to do before risking further losses.