If you want to be among the elite traders in the world it is critical that you break some of these bad habits that may be killing your portfolio.
Using Extremely High Leverages
Even legendary macro traders such as George Soros have fallen victim to the wrath of using extremely high leverage. Many traders are too late to realize that leverage is a double-edged sword; it can magnify profits as much as it can inflict huge losses. Traders who are relatively new to the markets will be misled into using the maximum leverage offered by their brokers only to lose a bet they can’t afford. High leverage should be treated with caution and catered in when calculating your risk management. Take precaution and your can save yourself the trauma of receiving margin calls from your broker.
Not Educating Yourself Constantly
This does not mean that you need to go back to the university and get yourself a degree every few years. It basically means that one should constantly educate themselves and avoid falling out with current affairs. You should actively invest in books, tutorials, journals and other educational material. Those who do not take time to understand the basic and complexities of forex trading end up losing money, closing their accounts and blaming their failures on the market. Don’t be a fool and expect to make a consistent return without perfecting your techniques and strategies. Forex trading is not a guessing game but rather a discipline that must be taken very seriously.
Not Minimizing Expenses
Just because your bets are accurate does not mean that you will turn a profit. You could be making your broker a small fortune instead by only making enough to pay for your commissions. In order to avoid this you need keep improving relations with your broker and being consistently profitable. This will allow you to get special discounts which will reduce your expenses. Another way to achieve this is by reducing your trading frequency. This is the better solution for those who are ‘over trading’. You can trade less frequently and therefore reduce the amount of commissions paid out. This is a tried and tested technique that will not only save some hard-earned money but also improve quality of your portfolio.
Poor Risk Management
Risk management has become such an important aspect of trading that huge institutional players have departments dedicated entirely to it. For a forex trader this includes understanding stop orders,leverage and money management. A good trader will consistently know the exact amount of risk he is taking and finding creative strategies to absorb losses if they are incurred. This is a discipline that will improve the decision making ability of the trader and ultimately increase the number and quantity of profitable trades. Do not risk half your account and blame the markets for blowing up your account. If you can’t calculate your own risk and manage it then get assistance as it will save you from future losses.
Letting Emotions Take Over
Enough has already been said about emotional traders and how they are more prone to losing money. Despite all the warnings very few traders actually take steps to ensure they avoid over excitement and doubt. For instance a trader who has just taken a huge loss should be stop trading, exit his positions and wait out for a favorable re-entry into the market. However most traders will instead stay in the market and try to recover from the losses despite the huge emotional beating they have just taken. Without such a doubt such a trader will continue making losses. If you want to trade successfully and make consistent returns then you should understand how emotions affect our decision making process and discipline yourself accordingly.
Not Sticking To Your Strategy
This is probably the hardest habit to break of them all. Some traders even claim that it is okay to occasionally veer of your strategy and try out other opportunities once you are already trading while others believe that you should not get distracted and follow through with your plan. The latter makes up for the consistently successful traders and is the better option. In order to stick to your strategy you need to first conduct proper analysis. Once you are confident in your research and its subsequent findings then enter the market and maintain your positions until they are fulfilled. In addition it is also important to ensure that you are conducting your own analysis and not relying on copied information.
Having Unrealistic Expectations
Most new traders get into the game expecting to become billionaires overnight. Others get into forex trading because they have been told that it is an easy way to earn a small fortune. If one is to enjoy a successful run at trading currencies they should escape the get-rich-mentality and embrace a more realistic view of the markets. If this bad habit is not taken care of early on in a traders career then it will end up clouding their decisions later on. Don’t think that you can invest $1000 and make $100,000 in a week. Do not be another victim of advertisements that promise traders enough money to retire at the click of a button. This is a job like any other and it will take a long period of time before you can fully enjoy its benefits.
These are just some of the common bad habits that most traders pick up along the way. They can end up costing a trader his livelihood if he does not take them seriously. Take precaution and improve your trading today.