Beginner mistakes are almost inevitable when you venture into the forex market as a new trader. We have all made some of these mistakes, but the problem arises if you never learn from them.
Learning how to avoid the most common mistakes in forex trading is therefore an essential part on your journey to becoming a successful independent trader. If you can learn to recognize and avoid these, you are already well on your way to achieving success in the forex market.
- Attempting to catch a falling knife. This is a major problem that a lot of people struggle with. The first thing you should understand is that even though an asset – be it a stock, cryptocurrency, or forex pair – appears to be “cheap,” it doesn’t mean it can’t get cheaper. A much safer approach than buying in anticipation of a reversal is to wait for the market to turn before you enter into your position. This is called “price confirmation” and it could come in the form of price breaking through a moving average, resistance line, a completed head & shoulder pattern, or something else than can be objectively defined.
- Keeping losing trades. Everyone who has ever lost money in the market knows this and is probably guilty of it. When a trade goes against you, instead of getting rid of it as you were supposed to according to your trading plan, you hold on to it while telling yourself that its sure to turn around any minute. You are on a highway to hell. The solution to this is to ask yourself a simple question: “Is this a position I would have entered into again today if I had the choice?” If the answer is no, get rid of it right away!
- Listening to rumors and “hot tips” from friends. Trade recommendations are everywhere. They may even pop up on this blog from time to time! Go ahead and read them if you want, but don’t treat them as anything else than input or inspiration for your own research. Remember that you are trading with YOUR own money. You should not let anyone else tell you what to do, for the simple reason that they are not the ones putting their own hard-earned money on the line. Also, do you know everything about the recommendation you are getting, including their stop-loss, timeframe, target price, and position size? More often than not, this is not the case. And if you don’t, the recommendation is useless anyway.
- Holding trades that keep you up at night. If your open positions keep you awake, something is certainly wrong. You may be trading with more money than you should, or your may lack confidence in your strategy or trading methodology. The first thing you should do to fix this is to take less risk with your trading, meaning you should trade with less money. If you are not confident in your trading strategy, paper trade on a demo account for a while or do more research until your confidence is back.
- Focusing too much on P&L. At the end of the day, your profit & loss is obviously going to be important to you. However, most new traders spend way too much energy worrying about that number in the corner of their screen. Constantly worrying about your money will almost certainly cause you to set the wrong stop-loss levels or take profits too early, meaning you miss out on the chance to ride and nice trend. Instead, focus on improving your trading process. The money will follow.
- Counting on your luck. Never forget that you are a trader, not a gambler. Although the two often have some things in coming, their mindset and the seriousness they approach their activity with differ. If you catch someone saying: “I hope this currency will go through the roof,” they are gambling more than trading. As a trader, you don’t hope, but you take a calculated risk based on some pre-determined criteria. Instead, what you should be saying is “I expect this currency to go through the roof because of…”
- Letting your emotions take over. Never ever panic in trading. If you are emotional and lack a calm and analytical approach to things, you must either learn to deal with it or quit trading. A calm and rational trader instead learns how to exploit other people’s fear and greed to his own advantage. Don’t make trading decisions because there is widespread panic in the market or everyone is talking about something. Only make decisions based on your own pre-determined plan. If you can just follow this simple advise, your odds of success in the forex market have greatly improved!