Top 6 Mistakes To Avoid When Trading Forex

Page Summary

While trading Forex is potentially one of the most rewarding forms of trading available, it can also become very discouraging if you are not careful to avoid these six mistakes. It’s also important to recognise that beginners and Forex experts commit these mistakes, so be sure to review each mistake in detail so that you can stay safe and profitable.

1. Not Doing The Research

By their nature, Forex currency pairs are multi-faceted and multi-factor. That means there are many variables that can affect how two currency pairs interact and how the price changes between them. Beyond that, currency pairs are traded 24 hours a day and, with news also functioning 24 hours a day, there’s almost always something that will cause a currency pair to interact.

With that, be sure to always research carefully about the events and other technical indicators that are occurring that could affect the currency pairs you are trading. Beyond that, be sure to estimate and evaluate how those events could affect your currency pairs in the future.

2. Risking More Than You Can Afford

While this mistake is more common for new traders, many experienced traders also fall victim to it regularly. This mistake usually occurs because of a misunderstanding of leverage. By understanding leverage, you’ll be able to avoid putting more capital at risk than you planned. 

For example, it’s generally safe to risk between one and 3%. That means if you have $100,000 of equity and are willing to risk 1% of it, you would never risk more than $1000 at a single time. This strategy is recommended because it allows you to maximize your profit while also minimizing potential losses. Just be sure to follow your plan and not get too emotional if you win big (or lose big).

3. Getting Emotional

Probably the most significant risk in Forex trading is becoming emotional and irrational when trading. For anyone to be successful in their trading, they must have a strategy that they follow and modify over time.

Often, after taking a substantial loss, traders become irrational and try to make larger trades to compensate for the loss. For most traders, those follow-up trades increase the loss and cause further problems.

No trader is right all the time. That’s why you need to always “hedge your bets” and tightly control you’re trading with a proven strategy. If you can’t control yourself its more advisable to let somebody else trade on your behalf using a managed account strategy.

4. Trading Without A Net

One of the best parts of Forex trading is that it is available 24 hours a day. This mistake is also one of its most challenging aspects because you cannot stay awake for 24 hours a day. That means you must predict and forecast the moves that your currency pairs will make even when you’re sleeping. That also includes setting up stop and limit orders so that you have an exit strategy. If (and when) major market shifts happen, you’ll automatically exit the trade with minor to no losses.

While stop loss and limit orders are no guarantee against loss nor of profit, they are one of the best tools for keeping yourself and your money safe from extreme loss.

5. Trading Without A Buffer

If you plan on actively trading in the Forex market, you must have a plan. There are many different strategies for trading Forex, so you should always test out your methods before you start trading real money.

This risk is one of the reasons why most brokerages allow for “demo trading accounts,” where you can use virtual funds to test new trading strategies.

While these demo accounts will not help you learn how to manage your emotions in the heat of trading, they will help you to see the viability of a trading strategy without risking your capital.

6. Choosing The Right Forex Broker

There are several different forex brokers on the marker everybody offering some-kind of the same service but with different conditions. We have compared all of the most trustworthy platforms on the market based on several factors and put together a list of the best trading platforms and best forex brokers.

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Disclaimer

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