When it comes to forex trading, there are a few factors that can make or break your career. Beginners are very prone to making these mistakes, but even intermediate level traders are susceptible to some of the biggest forex blunders out there. If you’re looking to increase your profit margin while dodging unavoidable mistakes, keep reading.
Forex Blunder #1: Blindly Trading
When we say refer to blind trading, we mean trading without the proper knowledge needed to make informed decisions. This could stem from opening a trading account too soon without learning all of the components that actually go into trading or failing to keep up with important news and other factors that can affect the forex market. Traders that don’t know what’s happening with the forex market are bound to feel confused and fall behind their colleagues that keep up with world events. Fortunately, you can avoid this mistake by ensuring that you have a proper education and by keeping up with forex news through an economic calendar and other means of acquiring that important information.
Forex Blunder #2: Risking too Much
From the beginning, forex traders need to work out how much money they can afford to invest in their trading account. From there, it’s crucial to manage that money by deciding how much you are willing to risk on each individual trade and by taking measures to limit your risk, like placing a stop loss. One of the biggest mistakes you can make involves using high leverage amounts, failing to use risk management precautions, and simply risking too much money on each trade. Together, these mistakes can blow through your account balance and leave you feeling defeated, which might even cause you to give up on trading for good. One simple tip is to stick with an average leverage (many experts use a 1:100 ratio) and to risk about 1% of your account balance on each trade.
Forex Blunder #3: Emotional Trading
Forex trading is often compared to a rollercoaster ride because of the range of emotions that traders can go through. Feelings of anger, frustration, doubt of one’s ability to be a good trader, and panic over the loss of funds are common, especially with traders that don’t have a lot of experience. This leads to irrational decisions and issues like revenge trading, which involves risking too much in an attempt to gain back funds that were lost quickly. Since traders are already feeling the adrenaline and aren’t thinking clearly, these types of measures usually end with even more losses. If this sounds familiar, some of the best tips are to lower the amount you’re risking on each trade so that losses won’t have as much of an impact on you, stick with your trading plan, and take a break when you need to calm down.
Forex Blunder #4: Choosing the Wrong Broker
There is an overwhelming number of forex brokers out there, each of which offers its own unique conditions and perks. Some traders might not realize just how much goes into choosing a broker, as you need to compare account types, funding methods and fees, leverage options, tradable assets, and more. If you choose the first broker that pops up on your search engine, there’s a good chance that you could have found an option that was better suited for your needs with a little research. It’s also important to know that your choice affects the amount of your profits that wind up in your pocket at the end of the day once broker and withdrawal fees are subtracted.
Forex Blunder #5: Not Having a Trading Plan
What types of instruments will you trade? How much money will you risk? What type of evidence are you looking for before you enter a trade? At what point do you plan to exit trades? All of these questions and more are addressed in a trading plan. Without one, you’re essentially just making random moves and trading all over the place. Even if you make money with some of these random trades, your history will be so inconsistent that it will be impossible to pin down what is causing you to win or lose money. Meanwhile, trading with an organized plan helps you to know exactly what you’re looking for and you will be able to figure out what is and isn’t working much more easily.
Forex Blunder #6: No Trading Journal
We mentioned that you might need to review your trading plan at some point in the event that you start losing money or whenever you’re looking to increase your profits. The best way to do this is by keeping a trading journal where you detail each trade you make, why you entered the trade when you did, how much money you made or lost, and etc. Whenever you need to go back and check on something, your journal will serve as a map that shows how well your plan is working, point out issues, and show you what you should keep doing the same. Unfortunately, many beginners never start a journal at all and feel lost when they start losing money because they can’t figure out the problem. Others might start a journal and abandon it after a few entries because they don’t realize how helpful it can be.
Forex Blunder #7: Setting Unrealistic Goals
When you first opened your trading account, you probably had an idea of how much money you wanted to make. Traders that set realistic goals and accomplish them feel a huge sense of satisfaction, however, having the opposite experience only sets traders up for disappointment. When it comes to trading goals, this is why it is important to have a realistic outlook based on your experience and the amount of money you’ve invested. Rather than focusing on the exact amount of money you want to make in a period of time, you can set short-term and long-term goals that focus on improving your abilities as a trader. You’ll see an increase in profits in return, and you’ll also avoid beating yourself up because you couldn’t meet the unreachable expectations you placed on yourself.