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Forex Risk Management

Big Trading Mistakes That Will Hurt Your Account Balance

Seasoned forex traders will tell you that there are several mistakes that can keep you from making money, or that could even cause you to lose your investment altogether. For the aspiring trader, the thought of losing hard-earned money on an investment that was meant to help secure their future is a daunting thought. Fortunately, many professional traders have learned about these costly mistakes the hard way – meaning that you don’t have to. Take a look at our list of big mistakes that will hurt your wallet below. 

Mistake #1: Trading Without an Education

If you have a sudden whim to open a trading account, you’ll find that it can be done fairly easy so long as you have a device with an internet connection, you’re 18 years or older, and you have at least $10 or so. This is actually the most common trading mistake that beginners make, as it is quite possible to rush into opening your trading account without any real knowledge. Those that make this mistake learn fairly quickly that without knowledge of what affects the market, risk-management, different strategies and plans, trading mechanics, and other subjects, success is impossible to come by. If you want to become a trader, avoid making this number #1 mistake and spend some time educating yourself first by taking advantage of free resources online. 

Mistake #2: Risking Too Much

With gambling, the idea of risk is fairly simple; the more you risk, the more you stand to gain. It’s easy to carry this mindset over to trading, but that doesn’t mean you should think this way. The truth is that risking too much (think 5% or more) on any one trade is a quick way to lose it all, especially if you don’t have much experience. Even if you feel as though you’re on a “winning streak”, experts recommend limiting the risk you take to 1% or 2% of your total account balance. Think $1 or $2 for every $100 in your trading account. Another pro tip is to actually base this percentage on the amount you’re willing to lose for each single trade, rather than basing it off your total account balance. 

Mistake #3: Being Emotional

Those that haven’t read about the psychology behind trading emotions are usually blind to how much of a role emotion can actually play on trading decisions. There’s really a lot to get into when it comes to the subject, but here are a few examples to paint a general idea:

  • Anxiety can lead traders to spend too much time thinking before entering a trade, causing the trader to enter the trade too late or not at all. 
  • Traders that have experienced a large loss or multiple losses in a row might become fearful of making any trading moves, even if they have information that supports the moves they want to make. 
  • A trader that has made a lot of money or who has experienced multiple wins in a row can become overconfident, which leads to overtrading or making decisions that are based on little fact because one feels they are on a “winning streak”. 
  • If one is trading out of revenge, they are likely to make decisions that are quick and not well-thought-out out of the urgency to make a profit. 

If you aren’t familiar with trading psychology, you should really dive deeper into the above subjects. If you’re already trading, you might want to think about the emotions that you feel while trading, as this can affect the way you make decisions and lead to a loss of money.

Mistake #4: Believing in Magic Answers

When we refer to magic answers, we’re actually talking about automated trading robots or signals that are advertised to be 100% successful. To be clear, a trading robot trades on your behalf, while a signal is a short message that gives you information about a trade you should enter. Don’t take this as a sign that there aren’t working signals and robots out there, however, you should know that 100% success rates cannot be guaranteed. Spend time researching the developers behind these products and reading user reviews before spending your money on them, and always keep an eye on those results. 

Mistake #5: Choosing the Wrong Broker

Choosing a broker is a task that deserves a lot of thought. After all, there’s a lot to think about. What types of fees are charged? What account types are available? Is the customer service up to par? If you choose the wrong broker, you’re going to face a plethora of problems down the road. You’ll likely pay insane fees that eat into your profits, spend a lot of time trying to get in touch with customer service if you have a problem, experience delays with your withdrawals, be stuck with a lackluster trading platform – should we go on? Any of these problems could be a nightmare, so be sure to put in the effort to ensure that you’re choosing the best broker possible.