Forex market is considered to be the largest financial markets in the world. The trade volume in this market is colossal. Though it is very easy for everyone to enter the trade, but sustenance is tough. It requires a lot of planning and discipline to stay in the race. It is critical to trade in such a way that you trade logically and slowly, make regular profits and avoid losses thereby safeguarding your investment.
There are several common mistakes that people commit while trading. In this article, we have researched the most serious mistakes that a trader should avoid.
- Risking huge amount of capital
It is the standard expectation of every person to earn huge profits from the forex trade. For this reason, many people risk a huge amount of capital on a single trade. It is not always true that greater the amount of risk greater is the gain/return.
It is a common rule that not more than 1% of the capital should be risked for one particular trade. Even the professional traders do not risk more than 1% of their capital.
- Unrealistic trade expectations
The forex market is very volatile and vulnerable to significant risks. The market can also react in an illogical, choppy and unrealistic manner. The market can be very erratic in nature. Be realistic.
You should formulate proper strategies to deal with the unexpected changes in the market.
Consider forex trading as a business. You should never consider it as gambling. Accept small losses in it. Keep patience, be realistic about profits.
- Method of averaging down
When people enter the trade, they do not have any intention of applying averaging down options. But gradually as their expectations rise they start with the concept of averaging down without realizing the outcomes. They continue to hold their positions for a longer period of time.
Forex market is very volatile. Several events happening around the world has an effect on the forex trade. We can only predict that a certain decision or event happening can affect the forex trade but cannot predict the implications of the trade correctly. So it is always advisable to place yourself securely so that the implications of the events do not jeopardize your success.
- Trading immediately after the news or the events break out
It is always seen that the markets act erratically after the break out of a particular news or event. The reactions can sometimes be far-reaching. Trading at such times may result in a huge loss. So wait till the volatility subsides and the steady trend is developed.
- Entering the market at the time of closure
It is seen that the market is very volatile on Friday. Many things happen and affect the trade on Friday. Same is the case on month ends. So never focus on trading at the time of closure. If you enter a trade on closing time, stay on your trade for the next business day after the weekend, you may face fall in the market gap or unexpected incident which may cause huge loss.
- Stay focussed on strategies rather than the obstacles
Do not concentrate much on the obstacles and reactions but abide by your strategies and maintain a trading discipline. Do not switch to different strategies. Try to focus on single one. Do back-test of your strategy. If you finally find that your strategy is working well, apply it in a live account.
The above list is not an exhaustive one. It is just guidance.