Forex trading is rapidly expanding globally, almost over 6 trillion of volume is traded every day in forex trading globally. Forex trading is the hardest as well as an easy way to make money online. It totally depends on the traders. Many traders lose money every day in forex trading. In Fact, according to ESMA, 75-89% of retail users typically lose money in forex trading. These losses can be lessened by avoiding some common mistakes. Beginner or advanced traders everyone makes mistakes.
In this article, we are stating some common mistakes that are done by the traders regularly; these mistakes can be avoided by taking some appropriate steps.
10 common mistakes in forex trading
1. Forex trading without a proper plan:
Forex trading without a trading plan tends to cause inconsistency in strategies. Trading strategies have some predefined approach and guidelines for every trade that must be followed by every trader; this prevents traders from taking some baseless decisions. Forex is the most volatile market. Traders must have the appropriate plans for entry and exit in the forex market and also how to handle the pressure which occurs while trading.
2.Forex trading with excess leveraging
Leverage is known as the loan is taken to initiate a forex position. In this method, traders can open a prominent position with less capital. The over-leveraging might attract the colossal loss. Therefore leverage management is a critical factor in forex trading. Brokers play a vital role in protecting the traders; many brokers offer unnecessarily more immense leverage; for example, 1:1000 that puts the traders in high risk. Authorised and regulated brokers will offer appropriate leverage as per the guidelines of financial bodies. While trading traders should consider this as an essential part. ETFinance is one of the top regulated brokerage platforms that offer real leverage according to the trading strategy.
3.Forex trading with lack of time horizon
In forex trading, the time investment is an essential factor with a trading strategy. Every trading strategy has different time horizons, therefore understanding the time horizon in every plan is vital for traders to avoid some direct losses while trading. For example, position trading has a longer time frame, while scalping will be implemented for shorter time frames.
4.Forex trading with less or improper market research
Forex traders have to invest in appropriate research to imply and execute the trading strategy successfully. Analysing the proper market research will brighten up the knowledge of market trends, the timing of exit and entry points and also fundamental influences. Traders have to dedicate more time to market to understand the product. In the forex market, there is a precise gradation between the different forex pairs and how they operate. To succeed with these differences traders must need through market analysis.
Considering the baseless advice and news must be avoided, this is the most common problem with traders. Traders should have proper investigation before considering these tips and news.
5.Forex trading based on emotion
Forex trading based on emotion always tends to unsuccessful and irrational trading. After losing the trade to compensate the loss traders always open additional positions. These trades usually do not have any fundamental, technical and educational backing. To avoid these types of trades, traders should always follow a trading plan effectively.
6. Forex trading with uncertain trading size
In forex market trading size is very important in each trading strategy. Risks are increased, and account balances are cleared because many traders trade unmatched sizes in reference to their account size. It is recommended that a 2% maximum risk should be taken of the total account size. If traders follow this standard rule, they can avoid the pressure overexposing the account. This pressure of overexposing the account might be hazardous.
7. Not exiting from position while less loss
In forex trading, many traders want to postpone the closing of the losing positions. The main reason behind this is hoping for the reversal. This will generally backfire because traders will be out of the market by facing several small losses or one colossal loss. To avoid this situation, traders must exit the position while loss is small. It's better to take the risk of 1 to 2% of the capital.
8.Forex trading without understanding the currency correlations
Everyone knows that there are different currency pairs, but many traders do not understand that the specific currency pairs are interconnected. They will frequently move against each other or together. This is known as negative or positive currency correlation. Such as GBP/USD, and EUR/USD are positively correlated as their counter currency is US dollar, while USD/CHF and USD/JPY are negatively correlated as their base currency is US dollar. These can be difficult for those who are not known with the mechanism of forex trading. This is most important while trading in the forex market.
9.Forex trading against the market trend.
The most popular and proven method of becoming successful while forex trading is to trade with the market trend. There are many benefits to this method. But many traders try to catch the bottom and tops of the market, this might be good, but if they are struggling to get results, it's better to go with the market trend.
10. Forex trading with choosing the inappropriate broker.
There are many forex brokers across the world, therefore choosing the right broker is an integral part of forex trading. Before opening an account with a broker, traders have to verify all the guidelines and regulations bodies of the brokers. As the safety of your fund is the most fundamental priority and also considers the other service offers like spreads, leverage and other trading tools. ETFinance is the most reliable brokerage platform for forex trading, offering all the dedicating services and trading tools that are essential for successful forex trading.
Forex trading is the most prominent carrier across the globe, but all traders always make some mistakes and attract losses. We hope you will find this article helpful and you will avoid all these above stated common forex trading mistakes and become successful.