Find out the strategy that will help you to trade on the M1 timeframe!
Common mistakes of Forex traders
2020-04-23 • Updated
Information is not investment advice
“Only fools learn from their mistakes, the wise man learns from the mistakes of others.” Have you ever heard this saying?
We have gathered the most common mistakes that traders make. Avoid your own mistakes, learn from the faults of others!
1. "Fail to plan and you plan to fail"
Everyone knows that it is quite difficult to do something without planning. We will tell you even more: it is impossible to trade without a plan.
A trading plan is a set of rules that consists of your trading strategy and money management strategy. A plan will help you determine when to enter a trade, how to exit an unsuccessful trade, time to reach your target, the amount of money to risk. Without this knowledge, you will definitely lose.
2. Not having a Stop Loss
Even if you are 100% sure of your profit targets, you should better set a Stop Loss. The Forex market is highly volatile, and urgent news can lead to the turn of the trade. In January 2015, the Swiss National Bank suddenly abandoned the cap on the franc’s value against the euro, and EUR/CHF fell by 30%. This event took everyone by surprise. Many traders who didn’t have Stop Loss orders in place suffered great losses. If you do not have a Stop Loss, you may just miss the moment of the turn that will lead to a disaster.
3. Adding to an unprofitable trade
Sometimes traders are so sure in their trading targets that they are blind to the reality. Imagine that you opened a buy order, but the market moved down. You, however, are so sure that you made the right thing that you increase the size of your position in hope that the price will soon reverse up. In a situation like you just multiply losses. If you have an open position, you lose the ability to make unbiased judgments and your actions become chaotic. As a result, never add to a losing trade.
A similar thing happens when a trader increases Stop Loss during an unprofitable trade so that the trade doesn’t close with a loss. Stick to your initial decision. Otherwise, your loss may become bigger. If it was a wrong decision, analyze what went wrong after the trade closed, learn from this trade and use this knowledge to make a better trade next time.
4. Lack of risk management
Traders who do not manage their risks, risk losing everything. Traders can’t allow themselves to think only about profits. You should always count how much money you risk losing per trade and per day. If you keep your potential losses limited, you will be able to stay in the market for a long time and thus have many more opportunities to earn. Stick to the rule: 1% risk per trade. Nothing should distract you from this rule.
5. Ignoring news releases
Every trader knows that certain events and data releases affect the Forex market. If the actual economic indicators differ from the forecast levels, currency pairs become very volatile. As a result, all traders, even those who choose not to trade on news, have to take into account the news. Ignoring the news is a serious mistake that can be easily avoided if you plan your trades and consult the economic calendar.
6. Correlated pairs
Traders often try to take multiple day trades, but many of them don’t take into account currency correlations. It may seem you have good chances to earn money on several pairs but be careful: if you see a similar trade setup in multiple pairs, it’s likely that they are correlated. So it means you can win or lose on all of them at the same time. For example, USD/CHF and USD/JPY have a significant direct correlation: when the first one goes up, the second one will likely strengthen as well. So, when you buy both pairs at the same time you double your risk.
7. Trying to avenge yourself
Losses are hard for everyone, especially newbies, so they try to have a revenge on the market. Usually, revenge trades are 2-3 times bigger than a previous losing trade. As a result, they lose even more. Losses are inevitable. Focus your energy not on the revenge trading but on the analyzing of the unsuccessful trade and improve it in the future.
8. Lacking education
The lack of the education leads to the trading blindness and losses. If you want to have profitable trades, you should always improve your skills. If your goal is to be a successful trader, read educational books, learn new indicators and practice new strategies.
To make a conclusion, you will definitely make different mistakes while trading. There is one more saying: if you are not making mistakes then you are not doing anything. However, if you avoid the common mistakes mentioned in this article, your trading will become successful faster.
Experienced investors always go by the rule that says “Don’t put all your eggs in one basket”.
Although the market is flat 70% of the time, most of the trading strategies are for trend trading. Thus, most traders use only 30% of the trading potential! If you want to be more productive, pay attention to this strategy.