When you’re a beginner, it’s easy to fall for some forex trading mistakes. You may not know what these are from the get-go, but that doesn’t mean you can ignore them. Let’s look at the most common ones.
Forex Trading Mistakes #1: Forgetting about Research
This is like bringing a gun in a bomb fight. Or, since you didn’t do any research, it’s like joining a war without any weapon.
Always remember that you can’t play things by ear in the forex market. This is one of the biggest forex trading mistakes you can commit.
Forex Trading Mistakes #2: Not Having a Trading Plan
First, what’s a trading plan? A trading plan is a strict set of rules from your trading strategy and risk management strategy. As the name suggests, it’s your plan of attack to the market.
Not having a trading plan can result in you losing focus and direction in the financial markets. You’ll be clueless about your next moves most of the time.
Forex Trading Mistakes #3: Not Diversifying
Diversification lets you put a safety net on your portfolio, preventing it from turning into ashes in case one currency burns the basket down.
Needless to say, forgetting about diversification is something you don’t want to do. It’s one of the golden rules of forex trading.
Forex Trading Mistakes #4: Not Learning about Money Management
As a beginner, it’s easy to feel overwhelmed by the goings on in the market. And if you don’t have a solid money management strategy, you’re up for rocky trip down the road.
There are many things to consider when trying to manage your money. But the gist is that you shouldn’t trade what you can’t afford to lose.
Forex Trading Mistakes #5: Poor Risk Management
Risk management is a crucial part of your trading plan that will make or break your forex trading success. You can’t expect to win flawlessly without checking the risks you have to shoulder.
Similar with money management, risk management requires you to consider many factors. These include the amount of risk you can take in exchange of a certain reward.
Forex Trading Mistakes #6: Not Knowing Your Risk Tolerance
A huge part of risk management has a lot to do with risk tolerance. Never, ever, ever forget about your risk tolerance.
Your risk tolerance tells you how much risk you can take on your trade without losing a single minute at of sleep at night. Without knowing your tolerance, you’d be trading blindly against giant risks.
Forex Trading Mistakes #7: Ignoring Stop-Loss Orders
A giveaway that you don’t have a trading plan is not using stop-loss orders. Aside from not totally using them, it’s also a mistake to use them improperly.
Remember that stop-loss orders, just like other market orders, are your insurance in the forex market. Use them and use them properly.
Forex Trading Mistakes #8: Using Too Much Leverage
Leverage in online trading lets you use more money to control bigger amount of trades through borrowing. However, it’s a huge mistake that this “free money” doesn’t come with its own inherent risk.
As a beginner, it’s not advisable to use too much leverage, given the fact that it’s a double-edged sword that can cut both ways.