forex mistakes

10 Mistakes You Can Easily Avoid As A Forex Trader

The forex market is the largest market in the world. It also has the easiest trading requirements, making it easy for even beginners to trade forex. Because of its unique attributes and quick profits, it’s easy to make forex mistakes, which eat away at your profits.

Keep reading to learn the top forex pitfalls to avoid.

1. Not Educating Yourself on Forex Trading

Forex trading is like no other trading in the world. If you try to do it without first educating yourself, you’re likely to fail. You can have the best trading strategy in the world, but if you don’t know what you’re trading or how, your plan may not work out.

Today, it’s easy to get your hands on proper education thanks to the internet. Read articles, watch videos, and sign up for webinars. But don’t stop there. Talk to professionals and follow current and successful forex traders.

2. Not Creating a Trading Plan

Trading without a trading plan is like shopping without a grocery list – it’s not a good idea. Creating a trading plan gives you a guide or a map to follow. Because trading can be very emotional and cause knee-jerk reactions, you need a written plan that you can stick to. If you find yourself veering, you’ll at least have something that can help you stay the course. If the plan doesn’t work, you can always start again, but at least you laid out the plan ahead of you.

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3. Not Setting up a Stop Loss Order

You need a plan to get out of a trade when it starts going south. The stop-loss order limits the price you’ll let the asset change before bailing out of the trade. Essentially, you limit the risk of the trade. You set it up to limit your losses to an amount that you can handle.

4. Leveraging too Much

You can invest on margin, which means you borrow up to 50% of what you invest. This can be great when the investment does well, but what happens when it tanks? It magnifies your loss and puts you in an even worse financial position. Managing your leverage is important, keeping it at 10% or less to ensure you don’t get in over your head.

5. Emotional Trading

We’ve all been there. We have the best-laid plans only to find out that the market didn’t cooperate. Too many traders turn around and try to overcompensate for the mistake, making an emotional trading decision. This is one of the most preventable and yet devastating forex mistakes. That’s why a trading plan is so important because it stops you from making emotional trades.

6. Overtrading

Letting the excitement of forex trades get the best of you may make you overtrade, which typically leads to disappointment. Again, the trading plan must be in place so that you avoid this. Yes, you can get excited about your ‘wins’ but changing your trading strategy just because you had a quick win doesn’t mean you’ll have more quick wins – you may end up with losses.

Trading can get addicting when you start ‘winning,’ but don’t let it get to your head. Stick your trading strategy so that you know what you’re getting into and don’t give in to emotional trading.

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7. Not Researching your Broker

You need a forex broker to conduct your trades, but not just any forex broker will do. How do you know you’re giving your money to a reputable broker if you don’t do research? The market is ripe with scam artists or even brokers on the brink of falling apart. Check the broker’s financial stability, read reviews from other investors, and do you own research to find the right broker.

8. Trading on More than One Market

There are multiple forex trading markets, all of which have different currencies and potential, but that doesn’t mean you should try more than one market at a time. Jumping into multiple markets at once doesn’t leave time to research, understand, and even practice the paper trading.

9. Making Multiple Correlated Trades

We’re all about diversification in all investments, but use extra caution with forex trades. This is one of the most common forex pitfalls new investors commit. Just when you think you’re diversifying your risk by buying multiple trades at the same time, you are increasing your risk of loss or just increasing your loss, however you meant to look at it. Do your research and know your trades so that you know if they’re correlated or not.

10. Working Ahead of the News

You know the news drives investment prices, but trying to work ahead of the news to beat out what may happen is a forex mistake. Sure, the assets will react, but you can’t predict how they will react. They may go in the opposite direction than you thought at first and then bounce back – they may go in the opposite direction and keep going that way. Without seeing how they react first, you could act prematurely, putting yourself in a position that you can’t liquidate easily, leaving you with a loss.

Avoiding these top 10 forex mistakes may help you make the most of your foreign exchange investments. If you’re new at investing, use incredible caution. Just because the barrier to entry is much more flexible for forex doesn’t mean it’s an easier investment. If anything, it’s harder than other investments because of the learning curve. Take your time, educate yourself, find the right broker, and create that trading plan. You can always adjust the plan down the road if it’s not working out, but always change the plan and then react rather than vice versa or you’ll find yourself falling for the most common forex pitfalls each time.

TIP! Bob James is a vastly experienced Forex trader. You can follow his detailed analysis and trades through 1000pip Builder. Receive the best Forex signals for trading. Bob has excellent results and great customer reviews.

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