I started trading forex with 20-pips-a day strategy. My daily target was only 20 pips; and I was very good at it. Part of the reasons that enabled my success was that I encountered many Forex trading mistakes at the beginning of my forex trading journey. These forex trading mistakes are so common that you might be a victim of one, if not all of them.
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If you understand the way forex works, one silly mistake can ruin a whole lot of things for you in the market. So without any further ado, here are 10 forex trading mistakes you should avoid.
Top 10 Forex Trading Mistakes You Should Avoid
If you want to be a successful forex trader, you should avoid these 10 forex trading mistakes:
1. Thinking many positions will translate to more profits
Some forex traders believe that a higher number of positions will translate into higher profit. But they forget that trading is not lottery, because in lottery, they normally say, the more your entries, the better your chance of winning.
I don’t know how true that is, but in forex, opening too many positions exposes your capital to margin call. When I started trading Boom and Crash, one trick that many traders I knew were using was opening too many sell order on crash or many buys order on boom, hoping that just one spike or crash will fetch them a good fortune. Sometimes, it works, sometimes it doesn’t.
My rule is simple, take few trades in a day. “If you catch a big win, you’re done for the day. If you snag a loss, you’re done for the day.”
2. Trading without Stop Loss
This is a very common forex trading mistake. The market can only be your friend if you learn to manage risk well. And, if you can’t calculate your risk to reward ratio in all your trades then you are not ready to be a successful trader.
The first thing I do before placing any trade is to set my stop loss… Setting a stop loss for every trade is one of the things that makes the difference between a good and a bad trader.
3. Trading Divergence without waiting for trendline to break
Divergence is one of the signal that I use frequently to trade. But in trading divergence, you have to know that divergence produce both positive and negative signal. So, it is wrong to just jump into trade divergence without waiting for the trendline to break. As a trader, you can’t fight a trending market. If the trade is an uptrend and you see a divergence, you have to look at for some conditions before placing your sell trade.
- Has it reached a resistance zone
- What is price reaction at that zone
- What happen to the trendline? etc.,
4. Trading without a plan
I have engaged with many struggling forex traders who are in the market with just one goal, to hit big wins. This kind of traders continue to repeat the same mistake and are very comfortable with getting the same results.
To succeed in the forex market, you have to come up with a plan, your plan should be based on your research, risk tolerance level and it should be target based.
5. Placing a trade without proper research/ Trading based on emotion
I fell into this trap once. I had a financial challenge so I needed to raise $2000 in a week. I did all the calculations and increase my daily target to see if I can meet the $2000 weekly target. I met my target for day one, but I saw a set up and I didn’t look at the historical data, or did any analysis, I just jumped in to get some quick win. But the market hit me hard that I lose all my profit for that day.
Because of this, emotions set in and I started revenge trading. The bad thing about revenge trading is that you will use lot size that you may not use on a normal trading day. At the end of that trading day I lose 80% of my equity.
6. Having Too many Indicators on your Chart
So many traders think that having too many indicators on their charts will help them analyze the market well. However, this is not true, too many indicators can become very confusing with time. If you are an indicator based trader, pick two or three simple indicator and build your strategy around them.
My advice: keep your chart as simple as possible
7. Trading many asset/not reviewing trading history
Trading many forex asset is one of the forex trading mistakes you should avoid if you want to be successful in trading.
My advice: Pick two or three trading asset, study them , understand them and make money from them
8. Not Reviewing their trading history
I review my trading history at the end of every trading day. Reviewing my trading helps me to understand if my trade entries were in line with my trading plan. most forex traders don’t care about their trading history; all they care about is profit, profit and nothing more.
9. Choosing the wrong broker
Your broker can mar or make you. Before deciding on which broker to use, check their deposit/withdrawal options, look at the market spread and their trading period. They are broker that trade 24/7 with same spread level. There are those that has very wider spread during the night.
If you choose a wrong broker, you will struggle in the market.
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10. Thinking Big Equity will solve all your problem
Don’t get me wrong big equity is good. But if you don’t have a good trading psychology, your big equity won’t stop you from blowing your account.
For newbies, my advice is simple, start with what you are willing to lose, this will help you build a good trading psychology and also help you understand the market.