Whether you’re a rookie trader or a seasoned professional, you’re not free from errors.
With this straightforward guide, you’ll learn 5 common forex trading mistakes and traps. If you realize that you’re making some of these mistakes, you can take the proper steps to fix them.
Let’s get started.
Common Mistake #1: Unrealistic Expectations
Let’s be honest: If you’re just getting started in forex, you’re not going to make a lot of money anytime soon.
Obviously, there are special cases. In any case, exemptions are all over; it's simply entirely improbable that you'll be the following "wonder kid." Rather, you're presumably going to go down a similar street that most dealers do. And believe me, that road is a bumpy one.
Now, this doesn’t mean you can’t be successful. Even if you have a small capital, returns can compound over time. However, most traders don’t understand what it takes to get there.
Successful trading comes down to a mix of knowledge, personality traits, and mindset.
Neither of these is something that you can’t develop, but without hard work and commitment, you’re bound to fail.
Common Mistake #2: Trading Without a Plan
No doubt, having goals and maintaining a positive attitude will go a long way towards achieving almost anything. But merely expecting something to happen will not make it happen.
If your trading is based on gut feelings and random trade ideas, you’re in big trouble. Even the Law of Attraction dictates that you must have a plan and take action. Otherwise, it doesn’t work.
Here’s the thing:
Forex is an uncertain environment where anything can happen at any moment. Unlike the games you can play in the casino, it doesn’t have a built-in system that you must follow.
On the one hand, this is great because trading doesn’t force you to be a loser. On the other hand, you’re solely responsible for creating a plan so that you can always act in your best interests.
Your plan must define how you will enter and exit the forex market (trading strategy) as well as how you will handle the psychological pressures that come with trading. Forex signals can greatly help you out as they show you when to enter and exit the trade.
Common Mistake #3: Ignoring the “Bigger Picture”
Your trading platform is made up of at least nine different timeframes. Out of those, how many do you follow?
If your answer is “one,” you’re missing out on a huge opportunity to find high-probability entry and stop levels.
Here’s what you need to know.
In general, technical analysis tools are more reliable in higher timeframes. These are the charts that are affected by the news and casual confusions to a lesser extent, so you can expect a more balanced price action.
This is true at every level.
The daily chart is more reliable than the hourly chart, and the five-minute chart is more reliable than the one-minute chart.
Now, this doesn’t mean that if you’re using a low chart, you must switch to a high one. But there’s really no reason to limit your analysis to your preferred timeframe.
Typically, three different periods give you a broad enough picture of the market. Using more than that is unnecessary and can be confusing.
Common Mistake #4: Not Reading Trading Books
We don’t care what kind of trader you are. Whether you’re a long-time veteran or a complete beginner, you can benefit from reading books.
Highly successful people like Warren Buffet and Jeff Bezos have very strong reading habits. Buffet, for example, suggests reading 500 pages a day.
While that is beyond the reach of most of us, you can probably find a way to improve, especially when the average person reads only four books a year.
If you don’t know where to begin, here are some of our favorite books:
Trading in the Zone by Mark Douglas
Reminiscences of a Stock Operator by Edwin Lefèvre
Naked Forex by Alex Nekritin and Walter Peters
Trading for a Living by Elder Alexander
How to Make a Living Trading Foreign Exchange by Courtney Smith
The Art and Science of Technical Analysis by Adam Grimes
Market Wizards by Jack D. Schwager
Simply set a time-of-day routine. For instance, you can read a chapter every morning, before your brain is overloaded by the day’s errands.
Common Mistake #5: Concentrating on Money
The best way to make money in forex is to not worry about it. Just do your job really well and the results will come.
Basically, this is how highly successful people make money in every area. Steve Jobs, for example, created enormous wealth over his career but always pursued his passion instead of chasing paychecks.
Good doctors, lawyers, engineers… They don’t count money while working. They are 100% devoted to the perfect execution of their tasks.
Sure, they don’t have to watch their money fluctuating up and down with every tick. However, this shouldn’t be a problem if you have a solid money management plan in place.
If you want to be a good trader, you must concentrate on keeping your risks low and finding high-probability trades. That’s how you can come out ahead in the long run.
Common Mistake #6: Trading Against the Trend
One of the simplest, most popular, and most proven methods of achieving success in forex is to trade with the trend. There’s even the added benefit of trading less, which means more time and fewer commissions.
Despite all this, a surprisingly high number of traders try to catch market tops and bottoms. Don’t get us wrong here; you can do what works for you. But if you’re struggling to see results, consider trading trends.
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