What Are the Most Common Mistakes of Forex Traders?
The foreign exchange market (Forex) is a well-reputed investment platform where you can smoothly run a currency exchange business and easily make profit. It is true that anybody can earn hundreds of dollars per trade from the Forex industry. But for that, you need to gather substantial experience and knowledge about the market. Many beginners become too greedy and want to make that amount at the beginning of their career, which is not going to happen soon. As a result, these people start taking greater risks and make several mistakes while placing the deal.
Similarly, there are other people who make mistakes constantly, even though they are not greedy. We are here for those people. If you are a newbie, please go through this article and learn the common mistakes traders make.
Mistakes of Forex traders and how to avoid them
1. No risk management plans
Risk management plans are also recognized as money management techniques, in which the trader have to adopt different rules to handle the possible troubles. Some of these problems are – market crash and breakouts. Because of the volatile nature of the market, it is quite challenging to forecast the approaching direction. This is why the professionals encourage the novices to utilize money management techniques. Some of the best money management plans are – the risk to reward ratio, stop-loss limit, position size, trading styles, and so on. The most important of them is the stop-loss order. Learn about the advanced risk management technique at Saxo Bank and you will feel more comfortable with your trade execution. Always use protective stops as it is the most efficient way to save your investment from the big losing orders.
The stop-loss limit closes the trade whenever there is an adverse movement in the market. It is a prefixed value, which is placed below the current price. When the graph touches or crosses that value, the trade is automatically closed even when the trader is busy with other works. Another one is the risk: reward ratio, which should always be maintained at 1:2. This ratio indicates that the trader may make $20 from a deal or may face a $10 loss from it. The net value of this ratio should always be kept at less than 1.
2. Ignoring the important news events
For long-term Forex investors like position traders, news plays a significant role in helping traders make a decision. When you are a long-term trader, you have to think about economic indicators like GDPs, interest percentage, inflation, economic growth or contraction, consumer price index, political instability, and so on. News can reveal important information data or statistical value that can obviously help an investor to realize what is going to happen next. We highly encourage you to record the data and examine it closely. News is called the economic indicators, and the market’s volatility relies on them to a large extent. Interest rates, inflation, and economic recession are positively related to each other.
3. Not sticking to the strategy
Trading strategy plays a crucial role in determining the success rate of an investor. A strategy is like a framework of the trading style. What a beginner should do, and what he should avoid – everything is stated there. A strategy is developed after considering many things like the timeframe, trading methods, analysis, indicators, and finally, the preferences and psychology. Psychology is an essential factor while developing a strategy because sometimes newbies don’t seem to cope with the styles and feel stressed. This is why we advise that rookies build a strategy in such a way so that they feel comfortable with it.
Another issue arises when rookies don’t keep a trading journal. This is like a notebook in which novice traders in the United Kingdom keep their trading data. Using the journal, a rookie can later find out possible weak points in their strategy to modify and adapt it to improve their trading performance.