Let’s imagine that we have been trading for a while for a few months or a year, we are profitable, we are on a high and then all of a sudden, things go wrong, we lose some of if not all of our profits, but why? Why have we made these losses? There are a number of very common mistakes that people make which can lead to them losing their profits, or even their accounts. These mistakes can be easily avoidable, some through your own actions and others by changing something that you use. We are going to be looking at some of the mistakes that people make which can eat into their profits and also what you can do to try and avoid making those mistakes yourself.
Forex Broker Charges
From the very start of your trading career you will be using a forex broker, these brokers, unfortunately, have charges. Each broker will have completely different charges and they come in the form of three different things. There is the spread which is the gap between the buy and sell price, some brokers will artificially increase this gap as their way of taking payments for each trade, others trade straight up commissions. Every trade that you place will have a charge attached to it that you must pay. There are then swap charges, these are charges that you pay to your broker for holding trades overnight, they vary with the interest rates of the markets. All three of these charges have the opportunity to eat into your profits, when deciding which broker you wish to use you will need to take this into consideration, if you are using a scalping strategy then having a broker with high charges will basically use up all of your profits making it pointless. So ensure that you chose the right broker that won’t eat into your profits from the very start.
We briefly mentioned swap charges above, but they can have a larger effect than you may think. We have seen trades being held over a period of a week or two which have had swaps so large that even though the trade was in the blue, it was in fact trading at a loss, and the longer it was held the larger that loss became. You need to keep track of your swap charges, especially if you have a lot of trades open at the same time, if you fail to do this, they can very quickly mount up and overwhelm your profits, even causing you to take a loss when the trade is in fact winning. Know your swaps and understand what swaps are going to be applied to your trade, it may be worth taking a small loss in order to protect yourself from larger swap charges.
Forgetting Stop Losses
One of the major parts of your risk management plans will be your stop losses, they are designed to protect your account and should be there with every single trade that you make. However, it can sometimes be easily missed, especially if you are very quickly trying to put on a trade at the current price due to volatility, some strategies will have you placing the trades and then coming back to them to combat the losses, but again, this can mean that it is easily forgotten. We need to ensure that we are placing the top losses with eerie trade and that we are putting them on as we open the trade. If you feel what you do not have time to put them on, then put them on as soon as it is open, if not then avoid trading in what manner completely, you need to take your time to ensure that they are on so that you do not take larger losses which could take away quite a lot of the profit that you have previously made.
Think about how many currency pairs or assets you currently trade? If it is just one or two then there may be an issue. It is true that when you start out that you should only concentrate on one pair until you understand it, but once you do it is important that you start to branch out. Having trades on more than one pair, more than two, or even more than three will help to protect your account, it ensures that you are not putting all of your money on a trading pair. This means that even if one goes negative, the others will be there to help maintain your current profit levels and to help protect your profits and account. It is important to branch out, but remember not to do it too quickly and overwhelm yourself.
Changing Your Strategy
If your strategy is bringing you profits, why would you change it? The thing is, that many people do for some reason. We cannot explain it, but if you are doing something and it is working, do not change it, the old saying, “If it ain’t broke, don’t fix it” is very relevant here. Yet we see people do it all the time, changing things because they think that it will make them that little bit extra. That extra would be nice, but why risk losing something that you already have in order to get it? Stick to the working strategy. It has brought you profits up to this point, so there is no reason why it will not bring you more afterward too.
Letting Emotions Take Over
Emotions are wonderful things, they make us feel and they allow us to do things that we otherwise would never dream of doing. Unfortunately, when it comes to forex, those emotions are not exactly the most helpful thing. Things like greed, overconfidence, doubt, and pretty much anything else can have negative effects on our trading. Things like greed and overconfidence can cause us to trade outside of our plan, to place additional trades, and to also place larger trades than we are used to which is dangerous and is a sure-fire way to make some losses. Things like doubt can make it so we simply do not want to place any trades, to avoid putting them on makes trading completely pointless. If we aren’t going to trade, why are we sitting here with our money in an account? It can be hard to control the emotions, but if you feel them taking over, take a break, take a step back and relax away from trading, this way you can come back with a clear mind and then continue to trade to the plan.
So those are some of the things that people do that ends up eating into their profits. There are of course a number of other things that people do, some are obvious, some are not so obvious, but what is certain for all is that we need to stick to our plans and not change things. Understand what and why we are trading and then simply let the profits grow without any added interference that could potentially cause us to lose some of those hard-earned bucks.