Forex trading can create significant error margins and for this reason the combination of money management, continuous training and common sense is crucial to get the success you want.
The task of the trader is to maximize the likelihood of success by combining several factors in one trade. The human mind makes a great effort to be rigid and methodical, and this is likely to be one of the main factors that causes mistakes in forex trading.
Let’s now see what these common mistakes are.
Forex trading is speculating
Trading is not a way to invest and it is wrong to think of it as such. Short term trading is good for speculation but not investment. As a result, the trader mindset has to adapt to the new reality of being a speculator and not a long-term investor.
Reading charts is different, news has different weights depending on the time, so stop loss and take profit targets must be applied to each operation. Losing a small amount of money is normal and must be tolerated by a trader that is used to invest in other ways.
The activation of strategies only based on technical or fundamental analysis is a mistake because both techniques should be integrated. As in the technical analysis price models have to be confirmed by the behaviour of certain oscillators, the same basic analysis needs to be confirmed by fundamental analysis. You will never find the absolute truth in each of these two sciences taken individually; it’s much better to integrate them, perhaps by deepening the study of other factors, such as the sentiment.
Another classical mistake of the trader is to assume a greater level of risk than what can be tolerated by the invested capital. A too confident attitude will drive the trader to a bad management with too risky operations. This is fatal in a market like the forex one, where the leverage is very high. A wise money-management is crucial because, losing all the capital will simply prevent the trader from pursuing new trading experience, if there is no capital at all on the account.
Common mistakes also include presumption and lack of experience. The advice for those who access forex trading for the first time is always to train a lot before running with real money.
Learn from your mistakes in a demo environment
Opening virtual forex accounts (or demos) is the best advice for those who want to approach this type of market. Repeated negative experiences will teach the trader the most common mistakes in his strategy, but he will also know some little regarded but important elements; for example, trading hours are important because the liquidity of a foreign exchange ratio also depends on this and too wide bid and ask cause high costs for the capital.
Another common mistake is to copy the success and strategies of other traders. It’s not because these tips cannot be considered valid, but much for the management of the trade itself. Every stop loss must be adjusted to what each operator is willing to lose, as well as income margins must be conformed in time.
Thinking that the success of other traders can turn into your success is a huge mistake.
