In this article, we present 10 errors of the beginner trader that are repeated more frequently. These mistakes are actually made by any trader, from beginners to veterans. It doesn’t matter how long you have on the market; from time to time you will experience lapses of indiscipline, either because of extreme market conditions or because of emotional factors. It is vital to recognize and understand these situations in order to be successful in trading.
1. Cutting Profits, Letting Losses Grow
Usually, the most repetitive error when investing in currencies is to hold lost positions too long and close winning positions early (usually out of fear). Even with a larger record of winning positions, the losers, though less, will represent a larger amount of money.
The best thing we can do to limit losses is to follow a business plan that considers the risks and always use a stop-loss. Normally no one will be right all the time. It is best to accept that having some losses is part of the day-to-day, the more time it will take to refocus and get winning operations.
2. Operating without a Plan
Opening a position without having a concrete action plan is reckless, and the market will surely take our money. If the price moves against us and you don’t have a plan, you won’t know for sure when to cut the losses. If the price moves in our favor, neither will know when to collect the winnings. Making these decisions in the heat of open positions is a good invitation to disaster. Trading with a plan is perhaps the most important step a Forex trader can take, as it tries to largely eliminate the emotional part when it comes to making trading decisions.
3. Operating without a Stop-Loss
Operating without a stop-loss is also a recipe for disaster. That’s how a small, manageable loss can end up blowing up an entire account. Using a stop-loss is a vital part of a well-crafted plan that has specific and realistic expectations, based on prior analysis and research. Stop-loss indicates when a given strategy is invalidated.
4. Move a Stop-Loss
Moving the stop-loss to avoid being taken out of position is almost the same as investing without a stop-loss at all. It indicates a lack of vital discipline, which will unequivocally result in losses in most cases.
The exception to the rule that allows you to move a stop-loss, is when it is done in the winning direction, to consolidate profits that are being recorded in the position. Never move the stop-loss in the losing direction.
There are two forms of over-investment.
– Investing too often in the market: Investing too often suggests that something is always happening in the market and that you always know what is happening. If you have open positions constantly, It is also usually exposed to financial market risks. It is much better to focus on looking for good and strong opportunities, where the risk is minimal, and where a well-developed plan and strategy can be implemented.
– Holding many open positions simultaneously: Having too many open positions at once is an indication that you probably don’t have a good business plan and many of them are opening up instinctively without control. Many open positions also affect the margin available, making it more difficult to maneuver in difficult market situations.
Over-leverage refers to holding very large positions with respect to the margin available. Even a small market movement can be catastrophic in a very large position for the margin available. This common error is made more tempting by the generous levels of leverage offered by online brokers. If a broker offers leverage of 1:100, 1:200 or even 1:500, this does not mean that they should be used. Do not base your positions on the maximum leverage available. Positions must be based on factors specific to the operation, such as proximity to specific technical levels or confidence in any specific signal to open a position.
7. Not Adapting to Changing Market Conditions
Market conditions are always changing, which means that the strategies to be used must be flexible. The current market situation should always be analysed using technical analysis to determine whether it is fluctuating or trending. Likewise, the use of technical indicators must be flexible. No indicator works well all the time. Different indicators and strategies should be used depending on market conditions. Some indicators work well in fluctuating markets, while others work better in markets with more pronounced trends.
8. Do Not Be Aware of Important News and Events
Even for traders who rely exclusively on Technical Analysis for their operations, it is essential to be aware of the main news and events of the market. If at some point certain indicators are indicating the existence of a very good opportunity to open a transaction, but in half an hour a piece of important news that can move the market in a significant way. It would be unwise and very dangerous to open that operation. These types of situations can occur if you are not aware of events and news. Always keep the economic calendar at hand and identify those events of major importance that can affect your open positions.
9. Investing in the Defensive
No trader wins all the time. Some of the best traders even lose more times than they earn. But when they lose, they lose little. After a series of losses, it is better to wait a while for the market situation to stabilize and refocus on new opportunities. One should avoid falling into the mistake of investing in the defensive and try to recover or avenge the losses.
10. Having Unrealistic Expectations
No one is going to retire with the result of a single operation. The key is to make profits as experience is gained. You have to be flexible and manage to adapt to market conditions. It is a bad idea to have in the beginning goals about how much money you will earn. With expectations about specific quantities, and being in a position where those expectations have not been met, it is very common to fall into the temptation of opening larger operations to achieve the goal. Finally, the result is usually a greater loss.