There are common forex trading mistakes and that give nearly all traders trouble at some point in their trading careers. Traders generally buy and sell securities more frequently and hold positions for much shorter periods than investors. Such frequent trading and shorter holding periods can result in mistakes that can wipe out a new trader's investing capital quickly. Trading forex can be a rewarding and exciting challenge, but it can also be discouraging and risky with lot of ups and downs.
Many traders start trading forex in the erroneous belief that it is an easy way to make money. If you are lucky, you might make some money at the beginning. However, unless you are an expert, your success will almost certainly be down to luck and randomness. Inevitably, mean reversion will guarantee that your wins will turn to losses if you do not have a trading plan with a clear set of guidelines for your trading activity.
Having a trading plan not only assists you to manage your leverage, but also gives you some well-defined rules for entry and exit of positions. Moreover, it helps you stay focused on your trading decisions. Without a plan in place, you are almost certainly more vulnerable to the influence of your own emotions, which is never a good thing. Sticking to your plan, should ensure that you maintain discipline whenever you are trading.
One of the defining characteristics of successful traders is their ability to take a small loss quickly if a trade is not working out and move on to the next trade idea. Unsuccessful traders, on the other hand, get paralyzed if a trade goes against them. Rather than taking quick action to cap a loss, they may to hold on to a losing position in the hope that the trade will eventually work out. In addition to tying up trading capital for an inordinate period of time in a losing trade, such inaction may result in mounting losses and severe depletion of capital.
Trading can be a profitable endeavor, as long as the trading mistakes mentioned above can be avoided. While traders of all stripes are guilty of these mistakes from time to time, beginner traders should be especially wary of making them, as their capacity and capability to bounce back from a severe trading setback is likely to be much more restricted than with experienced traders. Studying, researching, planning and following your plans, taking notes of your progress, while protecting your investments are your best friends. Not following these simple techniques is the biggest mistake forex traders can make.