Penny Stocks

Common Trading Mistakes

Everyone enters the Forex market with the intention of making money. But,
not everyone gets to reach the goal of making money. Some traders reach the
intermediate level and fail. And some others leave the market right after
entering it. But, some traders still persist in trading the Forex market despite
the difficulties and risks. What do you think about those traders? Well, the
ones who persisted in the market might have had clear intentions of
becoming successful in trading. And the ones who failed to remain in the
market would have had the thought of making money. But remember, when
you set a goal you must have pure intentions in succeeding at it. You must
not look at the profits alone. Instead, you must think about success as well.
But there’s something I didn’t point out above. Yes, trading mistakes. Most
naïve traders who leave the market halfway make a lot of trading mistakes.
Indeed, Forex is a profit making market, so even a tiny mistake can lead to
severe failures. Hence, just like other markets in the financial industry, you
must follow a few guidelines to trade Forex successfully. But, unfortunately,
beginners don’t have the patience to study the guidelines before entering the
market. Anyway, I have concluded a list of common trading mistakes made
by Forex traders. If you understand the mistakes, you’ll be able to avoid
making them in the future. As I mentioned earlier, Forex is all about selflearning. So, let’s start!
Analysis paralysis
In the Forex market, there are so many opportunities as well as threats. As
there are plenty of threats, you must prepare yourself to handle threats
successfully. However, most Forex variables distract traders when they are
trying to think straight about trading. If you want to find the right strategy,
you must overcome all these problems. But, this can be tough for beginners.
Anyway, you still have to find a good strategy to trade the market. So, even
after finding a good strategy, how can a trader face the analysis-paralysis
problem? Yes, it is still possible. Most naïve traders assume that they must
look for more because more is considered better. But, in trading, more is
never a good thing. Do you think that spending the whole day in front of the
screen will help? Well, it will not help. In fact, it will lead to further
confusion. You might come across numerous indicators, and it may give the
idea that your current decision is false. And, that makes you emotionally
weak, so this is when you fall into the problem of analysis-paralysis. The
solution is to stay away from the market if you have entered into a trade. The
more you watch the market, the more you get confused.
Overtrading
Most beginners don’t get to go a long way in trading because they overtrade.
This may sound like something simple, but it is not! Trading way too much
will lead towards losses. And there is no counter argument on this. The
interesting yet sad fact is that naïve traders make great profits in demo
accounts, but when they trade live accounts, they trade terribly worse. But,
you must understand why this kind of behavior is present in beginners.
Basically, when a trader trades the demo account, he or she doesn’t become
emotional. The reason is that the trader knows the demo account isn’t real
and even the money is fake. But, remember, if you don’t practice, you will
not trade well in a live account. The underlying reason for overtrading is
emotion. The traders get attached to the market emotionally, and they
overtrade as if they will not end up blowing their account. You can actually
control overtrading. But for that, you must have a defined plan that you
adhere to. To be said simply, instead of trading you are gambling! Instead of
trading like a reckless gambler, you must develop a calm and realistic
approach to trade the market. Of course, if you have been overtrading for
some time, it will be difficult to stop at once. But, for now, you must not
trade the live account, instead consider demo trading. Take some time to
understand overtrading and the effects of it. Once you understand, you will
not make a mistake again.
Risk and money management
Another mistake made by Forex traders is not managing risk and money
when trading the market. If you want to achieve success in trading, risk
management is important. The simple definition of risk management is
controlling the risk to the level that you can handle. The beginners often
follow this denial concept. They deny the fact that they may lose any trade at
any time. They believe all the ads and fabricated stories about quick money
in trading. Hence, they don’t give enough attention to risk and money
management. Just think, how reasonable it is to risk more than the amount
that you can handle losing? Sounds insane, right? But, this is one of the most
common mistakes. A single trade can wipe your account completely if you
don’t control the risk. If you don’t manage risks, you are going to lose
everything. If you are dreaming about profits, it is a good sign because you
are motivated to make profits. But, if you are dreaming ONLY about profits,
then it is not a good sign. You must think about losses as well. You must find
the risk ratio that you can afford to lose. Most professional traders and Forex
mentors recommend 2% risk, but still, the decision is in your hand. You
must decide the ratio that you are comfortable with.
Improper or no trading plan
Not having a plan or having an improper plan both fall into the same
category. Having an improper plan is more like having no plan. So there is
not much difference. This is also another mistake made by naïve traders.
Most naïve traders assume that they can create a plan later but that later never
comes. Besides, you must have a plan when you enter the Forex market
because, without a plan, it is tough to enter into or exit a trade. A plan makes
you stick to your goals. When you don’t have a plan, you tend to make
decisions emotionally. You will pick some random trading strategy, and you
will use any approach to enter into a trade. Plus, you will exit a trade without
considering any important factor. Thus, if you have a plan, you’ll plan your
trade execution. Before selecting a trading strategy, you’ll shortlist some of
the strategies. And you’ll have an exit plan. Likewise, you’ll be trading like a
professional. Of course, even professionals must have a plan. But more than a
professional, a naïve trader must have a plan to keep things organized. It is
crucial to have a written plan that acts like a roadmap. Honestly, there are
numerous benefits that you gain from trading with a plan. If you don’t
believe it, you can test it on a demo account. Typically, when you do
something without a plan, your vision will be absurd. Thus, a plan keeps your
vision clear. You will know when to exit a losing trade and when to extend a
profitable trade. So, it is all about having an effective trading plan!
Trading or gambling
Trading and gambling are two different things. But, due to greed, the
difference between trading and gambling have become something that is hard
to define. Of course, beginners have the urge to enter into the market. But
once they enter, they don’t think about ethics and morals. Instead, they
develop a gambling mindset. They start trading as if they have been
practicing trading. Well, you must not enter the live trading account if you
have not mastered your trading strategy, techniques, or approaches. The way
to differentiate yourself from a gambler is to practice trading. You must start
with a demo account. Remember, you must not trade the demo account for
the sake of trading. Instead, you must trade it for a certain period until you
become comfortable with Forex trading. But then, some traders will not have
real emotions when trading the demo account. Hence, it can be tough to
manage emotions while trading the demo account. So for this, you must try
your best to keep your emotions real while trading the demo account. Only if
you keep your emotions real will you be able to manage to live trade
successfully.
Ignoring stop-loss
There can be times when you are confident about the profit targets. But, it is
always better to focus on stop-loss placement. You already know that Forex
is a volatile market where things can change in seconds. There can be certain
events that will change the currency values in a short time. These events will
have a huge impact on your trading decision. Hence, stop-loss will protect
your account from facing losses. Thus, even if you are a professional trader,
you must not ignore stop-loss placement.
Avoiding news releases
You must understand that news releases have a huge impact on the Forex
market. Certain economic factors will create changes in the currency pairs.
Thus, even if you are not a news trader, you must keep an eye on the news
releases because it will affect the currency value. If you avoid news releases,
you might make huge mistakes, so it is better to keep yourself updated about
the news releases.
Increasing trading positions
Some naïve traders are overconfident, so they believe that their trading
targets 100% profitable. So, even if their anticipation doesn’t go in the right
direction, they still believe that the trade is going in the right direction. And
they simply add more positions with the hope of a price reversal. If you make
this mistake, you’ll be increasing the losses created. If it’s an open position,
you must never add more positions to it because it will become a chaotic
situation. So, don’t add more positions to trade if you are not experienced
enough to understand it.
Currency correlations
Forex traders believe that they can earn more profits if they take more than
one day trade. Of course, you can make good money, but on the other hand,
losses will be doubled. When you trade multiple trades, you will also be
dealing with currency correlation. When the currency correlations have a
similar setup, both losses and profits can occur. If you are handling with
currency correlation, you must remember that you are dealing with risks.
Revenge is not sweet
If you are a naïve trader, losses can be tough for you. But that doesn’t mean
professional traders are happy about losses. Even the professional traders
don’t prefer earning losses, but they don’t take revenge from the market. On
the other hand, naïve traders take revenge. The revenge trading will not do
any good to you because you will end up facing losses. However, to avoid all
these you must accept the fact that losses are possible in trading. You can’t
run away from losses. But, you can always limit losses. Hence, instead of
revenging the market you can focus on improving your trading style.
Lack of knowledge
Actually, I should have added this mistake to the top of the list. When you
don’t have the Forex knowledge, you are likely to move towards losses and
failures. To enter into profitable trades, you must keep improving your
trading skills. If you aim to become a skilled trader, you must keep feeding
Forex knowledge. Try to learn new trading techniques, methods, approaches,
blogs, and educational books about Forex trading. You must only enter the
Forex market after understanding the whole market. Most naïve traders don’t
make an effort to learn the market, so they lack the Forex knowledge. If you
are assuming that trading strategy will help you to support trading, you’ve got
it wrong!
Along with the trading strategy, you must have all the other important
knowledge to trade Forex successfully. But remember, the knowledge that is
not practiced is worthless. Hence, you must practice demo trading with the
knowledge that you have acquired through learning.
Improper trading goals
I know, money is important. But if you begin your trading journey with the
ONLY aim of making money, it will be the same reason why your journey
will end. If you want to become a profitable trader, you must set proper
trading goals. If you stop aiming for money alone, you will be able to
improve your trading path as well as the account. When you run after money
without thinking about anything else, you might break Forex rules and trade
without a limit. Maybe you might earn a few good trades initially, but in the
long run, you will not be able to create a successful trading path.
Selecting the wrong broker
Most naïve traders don’t select the right broker because their complete
attention is on making money. They don’t think about the ways to make
money. Only if you find a good Forex broker will you be able to manage
your trading account successfully. Also, your success begins when you find a
good trader and deposit your capital on the trading account. If your account
isn’t managed successfully, you will end up losing your money. Hence, you
must allocate time to find the right broker. You can use the tips that I have
mentioned already.
Not knowing the purpose
For some naïve traders, Forex trading is an entertainment. They find out
about Forex trading in an ad, and they think it will fun to trade Forex. So they
just enter into the Forex market. But, this is not the purpose of Forex trading.
If you are entering the Forex market, it is important to know for what purpose
you are entering the market. Your purpose will decide your level of
commitment, attitude, and the goal. Thus, set your purpose wisely to make
money from trading. You must be consistent in trading if you want to see
yourself as a successful trader.
Being greedy
The beginners are usually greedy to make more money in trading. In fact,
greed is the main factor that makes traders fall into traps. Most beginners
enter the Forex market with the wrong intention, and they assume they can
become rich quickly. When you become greedy, you will begin to chase
unrealistic goals. Of course, you can set goals, but it should be realistic. Only
if you set the right goals, you’ll be able to overcome mistakes. So for that,
you must avoid being greedy to make more money.
Not understanding Forex psychology
You must understand that Forex psychology has a lot to do with Forex
trading. In fact, it is one of the major parts of trading. Some traders fail to
trade the Forex market successfully because they don’t understand Forex
psychology. Most Forex mistakes can be avoided if traders understand Forex
psychology. But, naïve traders don’t even consider Forex psychology as a
part of the trading journey. I’ll be discussing more Forex psychology in
following chapters so you’ll understand better.
It is not easy to learn the mistakes and to correct them when you are trading
Forex. But, you are lucky because you are warned about the mistake
beforehand. So when you are trading, you’ll not make most of these mistakes.
Studying and learning the market will always be beneficial so you don’t have
to think that learning the mistakes is a waste of time. Let me tell you, even if
you learn these mistakes over and over, you will still make certain mistakes.
But, remember to correct them to become a noteworthy trader.