6 Commons Forex Trading Mistakes to Avoid
Given the short time frames offered, trading forex can magnify your returns as well as your losses, so it is important to avoid costly mistakes. The same applies if you are trading binary options or a CFD as well. The traders that do fail often commit any number of these 6 mistakes, make sure you learn from them and avoid making these same mistakes as they can cost you money.
1. Not being aware of market moving news
An all too common mistake made by inexperienced Indian fx traders is entering trades without any awareness of recently released news or data that could influence the outcome of the trade. Similarly, upcoming news or data releases can have a major impact on the profitability of trades so dismissing this market information can be costly and often burns inexperienced traders. Experienced traders and investors from India are informed and aware of upcoming news and the potential impact on the market. Some of the news and data releases that can have large impacts include; interest rate announcements, jobs data, quantitative easing and central banks buy/selling currency. To view what news is upcoming visit a page like http://forexcombined.com/calendar/. Inexperienced traders should not trade around or during important announcements as they more than often get the trades or timing wrong. On the other hand, experienced traders often look for upcoming announcements as a trading opportunity.
2. Gambling instead of trading
Too often inexperienced Indian forex traders treat trading as a form of gambling. Taking trades on ‘gut feel’ or taking bigger or shorter term trades to win back any losses they have made is just a recipe for disaster. The most successful fx trading is done by those who do not under any circumstances treat forex trading as gambling. They stick to their own system and strategies and only take trades when they see a trading opportunity, not when they feel lucky or have to win back a loss. Take forex trading seriously at all times, get use to running your trading like you would a business opportunity.
3. No money management rules
Unsuccessful Indian forex traders will commonly trade without any thought about Money management. Money management refers to how much is being risked on each trade. Experienced fx traders from India will risk a set percentage of capital on each trade they take and never alter that amount regardless if they are experiencing gains or losses. Inexperienced fx, binary option and CFD traders have no money management rules and will increase the amount they risk on each trade as they begin to lose in order to chase and make back the losses. Always have a money management plan in place, a good starting point is allocating 5% of your broker account balance on each trade you make, this will give you room to cover a run of losses.
4. Hedging positions
There is a real chance that after you have opened a forex position that the market starts to move in the opposite direction to what you expected, do not worry or panic, this happens to all traders. Some forex brokers allow you to close a trade early. If your broker does and you want to exit the trade then you have the ability to cut a losing trade early. If your broker does not allow early closure of a trade then do not get into the habit of hedging (taking a new trade in the opposite direction to your current trade), just ride out the trade. Hedging your trades will only lock in your loss. You will in fact be risking up to double your initial investment amount. Having money on both sides of the market has prevented many forex traders from moving forward.
5. Entering trades without a reason
Experienced fx traders from India enter every trade they make with a purpose, they always have a valid reason for making the trade and a strategy. They are entering at a known level and expecting the market will then be at X level. If they do not have a valid reason for taking the trade they do not take it. Inexperienced traders enter trades without a valid reason or plan due to boredom or the feeling they need to be in the market. Be disciplined, experienced traders and investors often only take a handful of trades a week, far less than what inexperienced traders take. Have a plan and a reason for entering each and every trade.
6. Not learning from past mistakes
Finally, every trader makes mistakes along the way that costs them money. Do not think for a minute experienced traders do not make mistakes, they do, but what sets them apart from unsuccessful traders is they learn never to make the same mistake twice. The definition of insanity is; doing the same thing over and over again and expecting different results. Do not be insane – don’t get stuck in the status-quo if you are unsuccessful. If something is not working as it should try something different; change your timing, reduce the amount you risk on a trade, trade a different asset or change your strategy. Inexperienced Indian traders who refuse to learn and continue to learn will struggle to move forward when it comes to trading, that is for certain.
By sharing these 6 all too common mistakes that we have seen over the past decade we hope that you can learn from them and avoid making these simple, but costly mistakes.
Your capital is at risk.