Forex trading can bring numerous benefits, but it can also come with its challenges which makes room for the possibility of making mistakes. Whether you’re new to forex trading or experienced traders, understanding these forex trading mistakes to avoid will help guide you through the process and learn to trade forex reasonably and efficiently.
Forex Trading Mistakes to Avoid
Diving in without research
When trading forex, you need to know everything about currency pairs, economies, upcoming national events or any unexpected events happening in the news that could affect the trading market. Without being aware of the possible changes in the industry, you risk losing money due to trades being affected by differences you didn’t pick up on in the market. Studying the industry can help you to highlight trends, influences and changes as and when they happen, and with in-depth research, you can predict the likelihood of changes before they occur. Remember that any media-related sources should be verified and investigated before making any irrational decisions.
Spending more than you can afford
Learning about margin and leverage and how they work is crucial to avoid spending more capital than you had originally planned. It is a good idea to set a maximum percentage of capital, which you would be willing to risk at one time, which is often 1% to 3%.
Trading without a strategy or plan
Trading without a trading plan is a forex trading mistake no trader can afford to make when large amounts of money are at stake. A good trading strategy will guide you to make the best decisions and limit the chances of making the wrong move. Before you begin trading real money, you should open a forex practice account where you can use virtual funds to test trading plans and become comfortable with the platform without the risk of loss.
Investing too much emotion
Trading requires an analytical brain rather than an emotional one. A loss isn’t something to feel great about, we understand that it can cause you to feel deflated, leading to irrational behaviour and a change in strategy that wouldn’t necessarily be the best step forward. Take losses on the chin and recognise they can happen, even with the most in-depth plan.
Overdiversifying a portfolio too soon
While diversifying has benefits, opening too many positions too soon is a mistake. The potential for returns can be higher, but a diverse portfolio comes with a lot of additional work and will increase the risk of losses. It can increase your exposure to potential positive movements in the market, which you can benefit from, but keep in mind the amount of work you will have to commit to.
Not tracking trades in a trade journal
A trading journal is crucial to learning the tricks of the trade and limiting forex trading mistakes. The journal should include every trade regardless of whether it is good or bad, and even the ones you want to write off entirely. Information can include
- Date and time of trade
- What was traded
- Position size
- Chart set up snapshot
- Thoughts and reasons why
A trade journal allows you to review the successful trades to follow and ones that didn’t do so well to avoid in the future.
How Financial Markets can Help
Financial Markets Online is rated the best forex education course worldwide on Trustpilot. We break down the forex trading experience into multiple courses based on your level of expertise and pride ourselves on offering the best-in-class education. Get in touch with us today to learn more about our training courses and how we can help you become a pro with minimal forex trading mistakes.
