Have you ever wondered what it is that makes some forex traders so successful? The answer is simple. The ability to learn from their mistakes and do better next time! Yes, that is right. Most professional and successful traders have made mistakes in the past, and nearly all of them have lost money at some point. But all of them came back stronger – because they never made the same mistake twice!
Now, no one likes to make mistakes. In fact, it would be great if you could just learn from the mistakes of others, and find out how to be more successful straightaway. That’s why we’ve written down 5 of the most common trading mistakes – and how to avoid them!
5 Common Trading Mistakes – And How To Avoid Them!
1/ Trading mistake – Not preparing
Anyone can trade forex. It’s never been quicker or easier to open a trading account. And that’s partly the problem – people tend to jump right in! One of the biggest mistakes new traders make is coming to the market unprepared. Forex trading is difficult and many traders, especially new traders, can fall victim to volatile markets. If you’re new to trading, it’s important that you learn how the forex market works, what forex trading involves, and how to protect their capital against losses. That way you will have the skills and knowledge to navigate volatile markets, and know when (and when not) to trade.
2/ Trading mistake – Not having a trading plan
It is quite common among new traders to enter the market without a plan. They often start with instruments they like, or have heard about it. And they often start with strategies that seem easy, but that they may not truly understand. While intuitive trading can be the quickest and easiest way to enter the market, it doesn’t always work out as planned. And if the market turns against you, you might start to panic, leading you to make hasty market decisions. If you’re new to trading, and want to avoid making mistakes, then it’s better to go in with a plan. That way you know what you’re doing, and already have an exit strategy in mind.
3/ Trading mistake – Not calculating the risk/reward ratio
The risk/reward ratio is the difference between a trade entry point and the Stop Loss/Take Profit orders. It helps you figure out your expected returns for each trade, taking into account any potential risks. Many new traders believe that high risk trades are more profitable than low risk ones. And sometimes, with a beginner’s luck, taking big risks even seems to pay off. However, in most cases, high risk trades lead to trading mistakes and financial losses. If you’re a new trader, and you want to be successful, then it’s better to focus on low risk trades and your long-term profitability.
4/ Trading mistake – Forgetting risk management
It’s not enough to simply calculate your risks. As all successful traders know, you need a solid plan for managing them. Risk management should be at the core of all your trades because it helps cut down your losses. There are a few simple things you can do to reduce your risk, from managing your leverage to always using a stop-loss. So if you’re new to forex trading, and you want to protect your money, then it’s important to learn some basic risk management strategies and to use them every time.
5/ Trading mistake – Not planning for key market events
Staying on top of market news is an essential part of trading. This is because market events and key data releases can influence the direction of trading during the day. And, if you are not aware of the financial reports or earnings, you might not know when to expect market volatility. On the other hand, trading the news can sometimes lead to unexpected trading costs. For example, the spread between the bid and ask price is often higher after market events. And this can make it hard to find the liquidity to close a position at your preferred price. If you’re new to trading, and you don’t want to get caught out by high market volatility or unexpected costs, then it’s good to read the news and plan accordingly.
Forex trading comes with a steep learning curve, and some mistakes are inevitable. But, by learning how to trade properly, and working on your trading plans, you can reduce the number of mistakes (and losses!) you make. For more educational content, check out our educational section.