Forex Trading Mistakes
Foreign Exchange Market, or FOREX, has become one of the most lucrative choices for investors especially beginners due to its ease of conducting business transactions.
Anyone can access the market as soon as they have a computer with an internet connection and a few hundred dollars to spend. However, the path is not always smooth or straightforward. Here are 5 forex trading mistakes to avoid:
Not Formulating A Trading Plan:
Any novice investor can easily fall into this trap. The positive effects of having a plan are enormous. Compiling a list of rules based upon which traders would create their trading strategy is something that would help any trader in long term. Market can be very unpredictable. If something happens which cause huge losses or substantial profits, then what would the next step be?
At times like these, a person may be too much emotionally involved to think clearly. Therefore, it is best to avoid decisions made on instincts and depend on pre-made risk-management plans.
Quick Decision Making Based Upon News:
It cannot be debated that news events have too much power over the markets. Even a flashing headline can significantly move the market for the time being. Therefore, it is of no surprise that many traders make their moves as soon as something changes.
But being confident early on about the position of the market can lead to grave errors in judgement. Volatility of market is hard to be determined by a single event. The market may move positively or regress or stay right where it was. That is why, making a decision before analysing news announcements can seriously hinder potential plans of traders.
Risking Capital On Single Trade:
Many beginners may think that trading defensively and betting in favour of secure and safe options would seem like a good investment choice. But risking big capitals on single trade would cause losses in the long term. Investing a major portion of your money in a single place will restrict your abilities to look into other opportunities.
The market seamlessly changes its directions, and the inability of an investor to keep up with it, will eventually result in major pitfalls. Main focus point should be that no single trade should hurt the traders in a big way. Rather, adopting an approach that divides the risk is a better way to go.
It’s true that the market moves quickly. But that does not require an investor to sit in front of a screen all day to keep records of any change. Trading way too much would inhibit long term plans which are why it is necessary to maintain discipline while investing so as not to turn profits into losses.
Similarly, trading too much options at once will also erode focus. It would be like shooting in the dark and hoping at least one arrow hits the target. But if it does not happen, then they will eat up your profits.
Having Unrealistic Expectations:
Old timers may have learnt it the hard way but for newcomers, it is essential to understand that even the ever-changing market will show permanent results in long durations. Beginner traders make the mistakes to overestimate their capabilities and jump into the fight with blasting guns.
Problem is when switching from a demo account to real money world, many of them fail to see significance of their emotions on their trading choices. These traits are learnt over a long time but ignoring them initially might cripple an investor. Therefore, it is better to understand that having patience is one of the most necessary habits in this market.