So you want to invest in forex prices? It can be one of the most exciting experiences in the financial realm. However, it can also be a very bad decision if you are not doing a few things right.
Rather than telling you what to do to succeed in forex trading, we will tell you what to avoid. Once you avoid these ten common forex trading mistakes, you will be on your way to making better trading decisions.
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1. Committing yourself without a plan
Without a solid trading plan, you cannot accomplish any goal. If you approach forex trading haphazardly, the chances of losing money become high. Many traders deviate from their trading plan once unforeseen circumstances hit. It is very important not to make this mistake. You should stick to your trading plan even when you come across alluring prospects.
2. Not using a demo account
Think of forex demo accounts as a training arena before the final match. If you skip practice and jump straight to the main event, you are bound to face problems. The purpose of the demo account is to teach you how things work. If you make mistakes in your demo account, there are no consequences. However, making mistakes in real accounts could have huge consequences. For these reasons, it is very important to first use a demo account before investing with real money.
3. Manage forex leverage risk effectively
Since brokers provide leverage in forex trading, many new investors have been lured to overuse this feature. However, you must understand that leverage is indeed like a loan and comes with the same repercussions. While the correct use of leverage can maximize profits, incorrect use can lead to significant losses. It is crucial to never over-leverage while trading in forex.
4. Poor market research
A common tendency among new traders is to pay too much attention to media and hearsay. You can easily make serious mistakes if you keep following this approach. It is especially dangerous if you base your entire investment strategy around these news pieces.
You need solid market research before venturing into forex trading. Forex trading is nuanced and complicated, and you would need years of experience before having a good grasp. Research as much as you can before making any decision.
5. Not having risk management protocols
Bad times can come at any time, and the least we can do is be prepared. However, many of us forget this simple precept of trading in forex. Like all other aspects of investment and money management, you should always have a plan for managing risks. Many readers do not proceed beyond stop-loss orders to cap losses. You need to do more than that and have a good risk management plan.
6. Not understanding time horizons
You need to have different plans for different trades depending on their time horizon. One trading strategy might not suit all your time horizons. In those cases, you need to have separate strategies for every time horizon. Whether you are targeting short time spans or long time spans depends on how you trade.
7. Making unrealistic trading plans
Novice traders often enter the market with hopes of becoming millionaires overnight. Fueled by popular culture, there is a perception surrounding forex trading that makes it seem very lucrative for overnight success. However, any experienced trader will tell you how different the reality is. When you are beginning your forex trading journey, it is very important to have attainable goals. You can aim high, but not unrealistically high. The chances of taking wrong steps and decisions increase significantly when you are chasing an unattainable goal. Set your own goals before trading in forex, and make those goals challenging, yet possible.
8. Not maintaining a trading journal
A trading journal is not only a great tool to keep you aligned with your goals but also a tool for improvement. When you carefully jot down all your trade dates, profits, and losses, overall performance, emotions, etc., you have a much greater chance of learning faster in the long run. The habit of maintaining a trading journal will go a long way in making you a disciplined and intelligent trader.
9. Going for unreliable brokers
The broker you choose will be significant in deciding how fast you learn and progress in forex trading. When going for an unreliable broker, you are also putting yourself under significant financial threat. Always choose a reputable broker with all licenses and a good track record.
10. Relying on emotion
Even experienced traders make the mistake of relying too much on gut feelings and emotions. While it has a place of its own, it cannot surpass detailed market research and analysis. It is very important to keep your emotions in check in both losses and profits.
If you avoid these mistakes, you can learn the solid tenets of forex trading much better in the long run. Remember that if you are already making any of these mistakes, it is never too late to relearn and rectify mistakes.