Trading Forex seems easy – buy low, sell high. Unfortunately, it takes more than just a well-funded account and the good intentions of making money to actually succeed as a professional Forex trader. Here’s the top 5 forex trading mistakes you must avoid if you wish to become a consistently profitable trader.
It’s a common and dangerous misconception that more trades made in a given time frame equate to higher profits. On the contrary, over-trading actually digs a deeper hole to bankruptcy. It chips off more and more of your capital by exposing it to short-term volatility and broker commissions. Unless you’ve found a day-trading or scalping strategy that works, go for longer term positions.
Sure, most Forex brokers today offer trading accounts for as low as $50, but it doesn’t mean you should trade with $50. Being underfunded can actually cause you to commit the first mistake and trade more often in order to satisfy monetary goals. Have at least $1,000 to invest in a trading account before you start searching for brokers.
Too Much Emphasis on One Trade
Traders think one trade will make or break their business. This is simply far from the case. If one trade isn’t winning, you simply cut it loose and move to the next trade idea. It doesn’t make sense to hold onto the trade in the hopes of it reversing from a losing to a winning position.
Listening to News
Economic reports play a big role in trading Forex. A huge miss in forecasts can result in a sharp drop or rise in currency prices. Listening to news does equip you with the information to manage positions wisely. However, using it as a precursor for trades can result in devastating losses. The same goes for listening to financial pundits and business moguls. Avoid mimicking their trade ideas and instead develop your own trading style.
Failure to Have a Plan
Not having a trading plan is synonymous to failure. Novice traders oftentimes get too excited that they fail to plan their long-term approach including stop losses and profit targets, entry and exit triggers, position sizing, and so forth. Before placing any trade, make sure you have a detailed plan on how to manage it once it’s opened. Ideally, you should have some form of journal, be it an online journal or a traditional notebook, to record trades in depth.
These are only 5 of the forex trading mistakes you must avoid if you want to achieve success in this profession. There are countless more pitfalls to avoid, yet the aforementioned mistakes should cover the fundamentals.
Be prepared to allot time and money in learning the Forex trading business. It will take time to formulate the right strategy and develop the right mindset but it all pays off in the long run once you start generating steady capital gains all while working in your home.