Forex trading is an exciting venture but also has its share of pitfalls. Avoiding these mistakes can make the difference between success and failure.
Getting overwhelmed by information overload – This is a common problem for beginners. It can cause them to lose focus on their trades and end up making bad decisions.
1. Ignoring the news
When trading forex, news events are a key part of the trading day. This is because economic data releases from central banks and major corporations play a key role in determining the forex market’s short-term price movements.
However, it is important to know how to trade these events effectively. For example, it is advisable to wait at least 10 minutes before opening a trade.
Moreover, you should also keep in mind that the effect of a released report lasts for about an hour.
This is why many traders open a trade immediately after the release of a data set. Unfortunately, this is usually not the best strategy and can cause serious losses.
2. Taking multiple day trades
Taking multiple day trades when trading forex is often one of the biggest mistakes that novice traders make. This is a serious mistake that can have an impact on your trading success.
Ideally, the best time to trade forex is during standard market hours, which are Monday through Friday. This allows you to avoid larger pricing swings – which can be common over the weekend – due to low trading volumes.
Another mistake that novice traders make is to increase their position size when they start making profits, which can cause them to lose money from their account. This is a major error, and it can be hard to recover from.
Regardless of whether you are a beginner or an experienced trader, avoiding these mistakes can help you to improve your forex trading performance. They will also help you to stay disciplined and manage your risk. By following these tips, you can ensure that you’re making the most of your trading opportunities and avoid wasting time and money in the process.
3. Trading unsuitable sizes
When trading forex, one of the most important aspects to focus on is your lot size. This is an area that many new traders overlook and can result in significant losses if not properly managed.
There are several ways to determine the best forex lot size for your account and risk tolerance. The most popular way is to use a technical analysis tool.
Using this type of software can be difficult and time consuming but it’s well worth the effort if you want to maximize your profits.
In addition to the standard lot size of 100,000 units, there are numerous other sizing systems that can be implemented in order to achieve higher returns. These include:
4. Adding to a losing trade
When you are losing a forex trade, it is tempting to try and get back some of the money that has been lost. This can be done by adding to your position size.
However, adding to a trade is typically not the best way to recover a loss. Instead, you should accept your loss and close it.
It is also not a good idea to double your position size after a loss because this can actually cause you more losses. This is because you are now long 2 lots and short 1 lot, which results in a crystallized loss on your original long 1 lot.
In order to improve your forex trading skills, you should be disciplined and take steps to prevent yourself from making the same mistakes in the future. These mistakes can make it much harder to win in the market, and they can also affect your overall finances.