Entering the foreign exchange market does not require a big investment. The low entry barrier makes it an easily accessible market. To become part of the Forex market all you need is a computer, a few hundred dollars, and a stable internet connection.
Forex trading seems easy and simple, but there are a lot of factors that play a significant role in determining market trends. Small mistakes can lead to financial losses.
Big Mistakes To Avoid
Traders can quickly enter the Forex market but continuous losses can lead to a quick exit as well. To avoid a swift exit, Forex traders need to be careful and steer clear of the following mistakes to be aware of.
No Trading Plan
A written document that outlines your trading strategy is known as the trading plan. The plan is pretty detailed as it includes the most suitable time for trading, risk ratio, trading, and exit strategies.
A trading plan must clearly state risk management rules so that you can reduce the losses. Without a proper and well-thought plan, Forex traders tend to take unnecessary risks, and instead of enjoying profit, they end up losing money.
Every trader must have a plan that is tested for profitability and the best way to test it is by opening a demo account.
Planning is a time-consuming activity, and it takes skill, discipline, and patience. But it is worth the effort. A good plan is flexible, so you make changes and adapt them according to your personal and financial situations.
Trading Despite Losing
A successful trader keeps a close eye on the two trading statistics; risk-reward ratio and win-ratio. If the winning ratio is lower than the losing one, it is time to put a break to trading and review your strategies.
People often make the terrible mistake of trading when they are experiencing constant loss. Traders should improve their strategies and make sure that their win rate is at least 50 %. Ensuring that the winners are larger than losing trades is the basic and probably the first lesson a Forex trader should learn.
Too Many Tools And Indicators
Beginners often believe that to become a successful Forex trader they need to invest in several fancy tools and indicators. They think that the indicators and tools are a necessity to understand the price movement of the Forex market and enjoy profitability. They make the mistake of focusing solely on trading from indicators and pay no attention to the actual price action.
In truth, the indicators can become a hindrance in earning profit. Too many fancy tools and indicators become a distraction. The best approach to ensure profitable trading is to learn to interpret price action as it tells you what is expected to happen in the market.
Unaware Of Affordability
Having a risk management strategy is a necessity as it ensures traders are aware of their trading limits. The ideal risk percentage of day traders is 1 % of their capital on each trade. When the risk percentage is 1% then you will only lose a small amount of capital even if you lose multiple trades in a day.
A lack of risk management means that you are unable to control your daily losses, and even 1% risk can lead to substantial losses.
Going into the trade without knowing your affordability is a bad trading decision because you could end up losing more than you can afford.
The value of currency pairs rises and falls with the scheduled release of economic news. It is not wise to anticipate the direction of the currency pair and take positions before the news comes out.
Anticipating news will not result in profitable trade because the price can move sharply in both directions. The movement can be sharp and quick in both directions, so anticipation is more likely to result in investing in a big losing trade.
In the beginning, the gap between bid and ask price is more than usual. It is hard to find the liquidity you need to get the price you want.
Instead of anticipating, Forex traders should have a strategy that will get you into a trade after analyzing the news release. It allows you to profit without any danger from unknown risks.
In the Forex exchange market, people can lose their fortune in a day. It can become a compulsive trading addiction, so it is essential to be extra careful and keep a lookout for the red flags. To enjoy profitable Forex trading it is vital to have a proper plan. Adjust it with changing personal and financial situations and avoid making common trading mistakes.