Table of content
10 Common Forex trading mistakes to avoid:
- Trading without a plan
- Not practicing with a demo account
- Trading without a stop loss
- Overtrading and Lack of Patience
- Trying to Anticipate the News
- Risking more than you can afford to lose
- Trading when you keep losing
- Choosing the wrong broker
- Neglecting proper education and research
- Succumbing to Emotional Trading
Forex trading has become very popular lately in Nigeria and around Africa. How big is the Foreign exchange market? According to Bank for International Settlements (BIS) report of 2022, the Forex marketplace is the largest financial institution in the world worth $2,409,000,000 ($2.409 quadrillion). It is estimated that $7.5 trillion is traded on FX markets every day.
FX trading is indeed an excellent investment choice and can lead to large gains. However, many new investors are delving into the art of FX trading without doing any thorough research.
I thought Forex trading is profitable. I felt shocked and devastated.” Nigeria-based student Ayomide Balogun shared his feelings following the crash in the value of the euro against the dollar in July. The 28-year-old who traded N80,000 from his school fees, says he has lost over 75% of his investment.
If a new trader jumps directly to earn profit without understanding how the FX marketplace works, he may end up with losses like Ayomide.
Admittedly, even expert traders make mistakes. However, learning faster by analyzing them will help you avoid them and also minimize your failures.
In this article, we will take into account the most common Forex trading mistakes and how you can overcome them.
10 common Forex trading mistakes to avoid
Below are the pitfalls to steer clear of on your trading journey:
1# Trading without a plan
Trading without having a roadmap is one of the mistakes to avoid when trading.
Benjamin Franklin once said: “He who fails to plan is planning to fail.” This statement is applicable in FX trading.
A new trader who wishes to be successful needs to have a clear and easy-to-follow trading strategy that sets out rules to be followed every day. After all, a strategy is a proven course of action to maximize the number of profits. That way you can always fall back on planned actions when things go wrong.
It is very tempting to just do something just like that or to go with your gut feeling – but this is the best way to fail as an FX trader.
2# Not practicing with a demo account
Another costly Forex trading mistake that beginner traders make is not backtesting with a demo account before trading with real money. Because you haven’t backtested your trading strategy on a demo account, you won’t know if your strategy is profitable in the long run.
With a demo account, you have the advantage of being able to invest with real market conditions without risking your money, and you should definitely use it to devise and test new trading strategies.
Read also: Is Forex Trading Difficult to Learn?
3# Trading without a stop loss
A reliable FX broker would help you avoid the mistake of trading without setting stop loss orders. You should have a stop loss order for every trade you make. When someone has a stop-loss order on a trade, you can take a lot of the risk out of that investment.
Although trading without a stop loss is exciting, it can also cause you to lose a lot of money very quickly. So be sure to try to set a stop loss so that you can avoid worse when you lose money while trading.
4# Overtrading and Lack of Patience:
Impatience often leads to overtrading, which is a common pitfall for beginner traders. Avoid the temptation of constant action and quick profits. Instead, exercise patience and wait for high-probability trading setups that align with your trading strategy. Remember, quality trades are more important than quantity, and being selective will lead to better long-term results.
5# Trying to Anticipate the News
Another Forex trading mistake is that many uninformed market participants fall prey to planned economic press releases. Anticipating the direction the currency pair will move in and taking a stand when the news comes out. Instead, it is best to wait for the market and adjust your decision to this news so that you can always fall back on your strategy if things go wrong.
Price action trading strategy also eliminates the confusion that comes with trying to trade the news. Once you have learned to use this strategy, you’ll be able to predict price movements following news.
6# Risking more than you can afford to lose
The most important part of any risk management strategy is knowing how much capital you are willing to risk for a trade. Day traders can ideally risk at 1% of their trading maximum. That means that even if you lose several trades in a row, only a small amount of your capital will be lost.
You can also overcome trading mistakes by managing daily failures. You should set a percentage on the amount you are willing to lose per day.
7# Trading when you keep losing
Just like with poker, trading can go into overdrive. This means that you try to trade to make up for your deficits but make such bad decisions because you are affected by those shrinking profits that you end up suffering even greater losses in the long run. When you have suffered a few losses in a row, it is best that you stop trading for a while. Go outside for a while. Get some fresh air. Think about your next steps and review your decision. Educate yourself to learn more about how best to move on to make a profit.
8# Choosing the wrong broker
An additional mistake often made by new traders is choosing an unreliable broker. Before you start trading it is important that you research the platforms as there is a lot of difference here ranging from costs for withdrawing profits to trading costs.
9# Neglecting proper education and research:
One of the most common Forex trading mistakes to avoid as beginners is diving headfirst into trading without gaining a solid understanding of the industry. According to the seasoned trader Ayomide, “Don’t rush into trading blindly. Education is key to success. So make sure to utilize demo accounts and seek guidance from experienced and successful Forex traders.
Additionally, take full advantage of the wealth of comprehensive resources and educational materials offered on marketsxplora.com. Remember, building a strong foundation of knowledge is essential in the Forex world and will pave the way for your success.
10# Succumbing to Emotional Trading:
Emotions and impulsive decision-making can wreak havoc on your trading success. Fear and greed are common culprits that drive irrational trading choices. Staying calm and detached from emotions is essential. As Ayomide advises, “Stick to your trading decision, trust your analysis, and don’t let fear or greed dictate your actions. Emotional discipline is what separates successful traders from the rest.”
Common Forex trading mistakes to avoid – Conclusion
It is inevitable for beginners to make Forex trading mistakes while learning to trade. However, the clear difference between winners and losers is learning from mistakes.
The trader who thrives in the markets is not the one who never makes mistakes or trades “perfectly”, but the one who avoids the Forex trading mistakes discussed in this article. You can make trading mistakes over and over again until you lose all of your money. The goal, however, is to prevent these avoidable mistakes from happening.
FAQs
- What are the common Forex trading mistakes to avoid?
There are 10 trading mistakes to avoid at any cost:
- Trading without a plan
- Not practicing with a demo account
- Trading without a stop loss
- Overtrading and Lack of Patience
- Trying to Anticipate the News
- Risking more than you can afford to lose
- Trading when you keep losing
- Choosing the wrong broker
- Neglecting proper education and research
- Succumbing to Emotional Trading
- What is stop loss?
Stop loss means an order to set a predetermined price to sell a currency pair to gain in a trade and limit loss.
- Which basic Forex trading mistakes do traders make?
Most investors lack proper planning when venturing into the FX market. Like Ayomide mentioned earlier, they get excited about the market trends hoping to get more profits at the start.