In the course of trading activities, as in life, only those who do nothing do not make mistakes. Correctly mistakes of a trader help them to improve and make correct conclusions about their trading strategy. They can be different – both the mistakes of a novice trader and an experienced participant in currency trading. However, there are those “rakes” for which a large number of players are coming, and it is worthwhile to consider them further in the list of the ten most common trading mistakes in the foreign exchange market.
What is the systemic nature of trading? This is an accurate and definite algorithm of actions in the course of currency trading, which brings regular earnings to the player. The fact is that many traders substitute the notion of a system for the concept of market analysis, but they differ from each other. The main difference: using the analysis, a forecast of the market’s “behavior” occurs, and the system determines the behavior of the trader in accordance with the current market situation. That is, after the analysis, the player can expect confirmation or refutation of the assumptions, but in any case he will be ready for every outcome, because he has developed a system – an action plan in any likely situation. This system approach allows you to connect minimal improvisation and provides maximum readiness for any turn of events on Forex.
Missing capital management
This is the following example of a Forex error, which directly affects the success of trading activities. Every professional in the field of currency trading uses one of the strategies of money management, which determines the size of his transactions, the moment of increase and decrease in their volume, as well as the choice of the lot. Not paying attention to this important detail, traders lose the chance to repeatedly increase the profitability of their trading tactics.
Uncertainty in yourself and your actions
The desired result comes only to those who gain faith in their own strength. And since psychology and emotions are integral parts of currency trading, the lack of faith plays a very important role in the trading process. Ability to control their emotions, not letting them shake confidence in a successful outcome, will certainly help the trader in this difficult and stressful area of activity.
Fear of opening position according to the system
If the player positions himself as a system trader, they must follow the system, and not be afraid to open deals when it requires it. The position in some cases may seem unprofitable even before the discovery, but following a certain algorithm is assumed to be a trading system. If a player is not able to make a deal at the right time and trades selectively, their activities lose the sign of systemic nature, along with all its essence and advantages.
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Ignoring stop loss and take profit levels
It’s right to set a stop-loss before opening a deal, not after. Thus, a trader can reduce trading risks by accepting the fact that transactions can be not only profitable, but also unprofitable. As for the take-profit, do not turn off the deal until the price approaches this mark. Undoubtedly, high psychological stress gradually makes itself felt, but closing the position in just a few points to the previously mentioned value of take profit can deprive the player of quite a large part of the profit.
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Regular change of the trading system
This falls into the category of basic mistakes of beginning traders: when they are perceived by a noticeable drawdown on the account, nervous tension and a weakening of confidence in their actions lead to a change in the trading tactics used, often during the trade itself. This happens with those who have not previously tested their strategy with the help of historical testing and they do not know what to expect from their trading method.
Increase in the volume of transactions
When a trader meets on their way a string of successive trading failures, they wants to somehow compensate for the losses, and opens many deals simultaneously. And if they on the contrary “caught luck by the tail,” they gets more and more profit, and increases the number of likely profitable positions. But in the first and in the second case, they will suffer losses, aggravating the present deplorable situation, or losing profit after a temporary successful period. It violates the canons of management, and if the player wants to do everything at once, most likely, they will be disappointed.
Failure to test your trading method
Testing the system generates confidence in its effectiveness. When a player knows what can be expected from it, they makes the most of its advantages and takes into account possible errors. Reducing, thus, the emotional tension, you can use the emotion-free head to extract the most performance from the chosen method.
Misunderstanding of own trading strategy
This error is related to the previous paragraph. Understanding its mode of trade implies such basic factors …
- The level of maximum and average draw downs in the last decade;
- Average duration of draw down;
- The percentage of successful transactions;
- Ratio of earnings and trade risks.
Knowing the results of testing your system gives the player an awareness of its benefits. If they are unfamiliar with them, it is unlikely that the strategy will bring the expected results.
Underestimation of trade costs
Spreads and swaps directly affect the reduction in profit, and it is important to understand how much. Brokerage commissions differ depending on the trusted broker firm, and here it is necessary to pay special attention to their sizes, which can significantly cut the earnings of the player if they are frankly overstated.
It should be summed up: The trader needs to follow their own trading method, reinforcing his confidence and emotional stability, and avoiding overtly overrated risks. Not only understanding the basic mistakes of beginning traders, but also avoiding them, you can really achieve your financial goals on the Forex currency market.