You’re bound to slip up everyone in a while?—?but these mistakes shouldn’t lead to a devastating crash-and-burn, especially when your money is concerned. Forex trading is famously known to be the place where many traders experience crushing failure because it is so easy to make mistakes. There is even a popular myth surrounding the trade that says as much as 95 percent of traders fail to make any money.
Thankfully, in modern times we have more information we can work on to improve our forex training and trading abilities. Here’s a quick, mini forex course you can read through to help you identify common forex mistakes that you should stop making immediately.
1. Trading Without a Stop-Loss:
A stop-loss is a predetermined point that, when reached, takes you and your investment off the trade. The price can sometimes swing in dramatically different positions against you, and a stop-loss order would help you mitigate the risks you face when trading.
Gracefully exiting a losing day trade does not just stop you from losing your money?—?it also allows you to efficiently move on to the next trade.
2. Adding To a Losing Day Trade:
The presence of a stop-loss helps prevent traders from “averaging down” and incurring more losses than they might have sustained. “Averaging down” refers to taking a new position on the same trade, even if the price has dropped, in the belief that it will turn around eventually. It can make your losing position larger,
especially if the price does not turn around and you continue to average down.
It is never advisable to add to a losing day trade, because you can recover from a small loss better if you trade with your proper position size.
3. Poor Profit Rate and Profit/Loss Ratio:
You can determine your profit rate by the amount of money you gain from a trade. A trader usually plans on scoring 50% of his profit rate.
Your loss ratio is the amount you lose on average. If you trade daily, you can simply divide the gains of your winning trade by the losses in your losing trade. The normal product for daily trading is 1, but a perfect index would be above 1.25, which would mean that you are a profitable trader.
To help with the forex training, here’s a quick snapshot: If your losing trade is $40 and your winning trade is $50, $50/$40 is equal to 1.25?—?results of a profitable trade.
4. Relying on Predictions of News Impacts on the Market:
What forex course would be complete without a discussion on the importance of balancing out the strategy between fundamental analysis (used when tying in news events with price movements) and technical analysis (used when looking at patterns of historical price for future movements).
Try not to rely completely on the market’s reactions to news prices, and develop a strategy that you can use to trade after the news and benefit from high volatility. This way, you can lessen your exposure to risks.
5. Choosing a broker without doing your research:
Every move in forex needs to be the result of meticulous decision making and strategy?—?and this also applies to choosing your broker. All the forex courses you take, and the forex training you have undergone, could be nullified if you put your money in the wrong hands.
The ideal broker for you will depend on your needs. Make note of trading conditions and a possibility of money withdrawal