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Zhi Finance » Textbook mistakes in forex trading

Textbook mistakes in forex trading

Newbies and students of forex trading often miss the obvious: many before them have made fatal mistakes. There is no point in making the same bad decisions over and over again. What a serious forex trader should do is learn from them and improve.

Re-learning these assumptions and missteps will increase one’s chances of success in this industry. If you have no experience, then the experience of others can only enrich you. Always remember not to make these mistakes.

Wrong timing of stop-losses

While stop losses are certainly essential in forex trading, the wrong timing can upend your entire strategy. Sure, you may be tempted to put a stopper in your money funnel, but the key to doing so is the right timing: the trade should still be tilted in your favor. Proper money management should come into play here. Risk should be minimized before a trade is made. Calculate and research your options.

Underestimating the risk of leverage

Okay, you may be thinking that if you use 300:1 leverage in your trades, you can make immediate profits. However, are you sure profits will come in? Many people think that leverage is a free poker chip, when in fact, the risk is much higher. It’s all about making sure you have a good hand. Even so, experienced traders are always careful to only risk 2-3% of their investment balance in their trades. Evaluate your risk and reward and don’t get caught up in the money and excitement.

Relying too much on signals and indicators

It’s like you’re just a sheep following a trend. Signals and indicators are just that: aids and clues to help you make decisions. Remember, your strategy and assets are unique to you, so technical indicators don’t always apply to you. You still need to work. There is no magic formula or machine that can do this work for you.

Day Trading

Some people may think that day trading is risk-free or less risky, and this may be true for some people. However, there is still a reason for long term trading: it gives you more time to wait for a position that works in your favor and generates more profits. Day trading can be successful, but it only works for a few people.

Falling for “magic” software

There are dozens of supposedly powerful platforms and software that tell you that you can beat the system and make huge profits. Some of them can be helpful, but many are duds. The main thing to remember is that there is no unique software that is infallible. It is possible to get indicators and advice from some, but it all depends on your acumen. Before putting your money on your program, you better test it thoroughly.

The same goes for systems and strategies on paper. Even if you have back-tested it, will the conditions you use to test it be the same conditions that will occur in the near future?

Overwhelmed by emotions

Forex trading requires objectivity, calm thinking and the ability to make good decisions. Be too afraid of risk and you won’t profit at all. Get too reckless and you’ll lose your shirt right away. Here’s a smart thing to do: read up on the psychology of Forex trading. Watch yourself and don’t work obsessively. Have a life of your own.

There is a reason why Forex trading is so popular, but only a few people have built their careers in this area. Many beginners fail, but where they fall down, you should pick up and do better.