Top 4 Mistakes Made By Forex Traders
The distinguishing factor between the two groups is "the successful" manage to dodge those mistakes that cause "the majority" to lose money. Listed are some of the common mistakes Forex investors make.
- 1. Over trading:
Investors come to believe that Forex is a get-rich-quick scheme. This is a myth. Forex trading requires equal amount of hard work and involves an equal level of risk as any other business. Getting high returns in the trading market is possible, but the chances are occasional. It lacks consistency because the market is based on speculation. Traders, especially new traders, are enticed by such occasional earnings and set unrealistic expectations. They conduct several trades simultaneously with a very high margin amounting to a huge risk. A large number of poorly executed trades culminate in heavy losses.
- 2. Lack of a trading plan
Tempted by the desire to get rich quick, investors literally gamble their money in the Forex market. Traders defer the creation of a trading plan believing it is not important. However, absence of a trading plan is the biggest drawback. Foreign Exchange trading requires a calm and calculated approach. It requires a proper plan that accounts for your actions and the trading approach and the strategies you use. A plan keeps a tab on your emotions and allows for a disciplined environment. If you think you have a plan in your head and wish to keep it there, it will not help. You must write down your plan in detail on paper.
- 3. Ignorance of the Forex Market
Lack of knowledge is one of the primary pitfalls of this investment system. As a beginner, you are not expected to know the A-Z of the trade. There are brokers to assist you. However, once you start trading, you are expected to learn them gradually. The first thing to familiarize yourself with is the methods of market analysis. One must understand the factors that impact currency values such as money supply, inflation, interest rates, taxes, elections, wars etc. An investor who spares time to understand his investment through these aspects is able to differentiate between a large profit and small loss.
- 4. Poor Risk Management
We dedicate a lot of time to developing strategies and completely ignore the aspect of risk management. As an investor, you must have a risk mitigating strategy in place. The principles of risk management should be a part of the trading plan. The best way to do so is avoid staking too much money per trade. The investment capital should not exceed the projected benefits. Diversifying investments is another method to mitigate risk.
I am sure you've read the story of the hare and the tortoise. The adage "Slow and steady wins the race" fits aptly to this situation. Irrespective of your experience in Forex trading, you should be disciplined and go slow.