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Three Common Mistakes in Forex Trading
Written by: PaxForex analytics dept - Friday, 27 June 2014 0 comments
Forex trading can be a very profitable feat. Every year, there are more and more people making profit from the Forex markets. If you take your time and work hard at learning the skill of trading, there is a very good chance you can become one of these people and become financially independent.
It is not a get rich quick market however. It actually does take time and hard work to master the skill. This is a disappointing fact to many newer traders, but if you avoid the following mistakes, you can potentially cut years off of your learning curve.
The first mistake that many new traders make is not testing out their Forex trading strategy. They read about a system on some forums and decide that it's the right system for them and start trading real money with it. Unfortunately, even if the system is profitable, it will be very hard to have the confidence to make intelligent decisions once in the trade if you have not tested it out for yourself.
If you read about a trading method that you are interested in, you need to do your due diligence and test it for yourself. Once you can see that it is in fact profitable, your confidence in that method will increase tenfold and even if you take a couple of losing trades it will not bother you because you have proven in your testing that it works!
Another mistake that traders make is that once they have a losing trade or a string of losing trades, they ditch their current strategy to look for a "better" one. This ties back into the previous point. If you have proven to yourself that the method is profitable, then why would you look for
another method? The fact is that every system or strategy will have losing trades. It is bound to happen. Just because this occurs does not mean that you need to change strategies!
You need to give your method time for its edge to work out. Some traders do this for years searching for the "perfect" system. Unfortunately they will eventually realize that they have wasted a lot of time that they could have been using to become profitable with a single trading strategy.
One more very common mistake among many traders is that they risk too much per trade. They have read about a system and feel that they understand it completely so then they jump in the market risking 10% or more of their account hoping to strike it big. Again, trading does not work like this. Imagine the emotions you would go through if you lost 10% of your account on a single trade.
Not to mention the nervousness you would feel while you are in the trade, whether or not it's losing. This is simply too much risk to place on a trade. Most professional traders don't place anywhere near that amount of risk. Professionals typically risk 1 to 3% on their Forex trades. If professionals who have been doing this for years risk just 1 to 3%, then you would be wise to do the same!
There can be a large learning curve to Forex trading. However if you avoid these mistakes from the beginning, you will be able to cut that learning curve down significantly and be trading profitably much faster than the average person. Treat Forex trading like a business and you have a good chance of becoming profitable.