We all make mistakes, it's a fact of life, but when it comes to trading the market, Forex mistakes can cost you dearly.
No matter how long you've been trading or how successful you think you are, it's possible that you're still making some basic mistakes and don't even realize it.
Take a look at the 5 most common Forex mistakes that traders make and see how many of them you're guilty of. You might be surprised and who knows, you may even re-think the way you trade.
1. Acting Without Consistency
When you enter a trade you have an equal chance of being right or wrong.
It's just like tossing a coin in the air and just like any other kind of gambling - and that's what Forex is - you hope you have an edge.
That edge will allow you to 'beat the house' and show a profit over a number of trades.
Well that's the theory at least.
If you're only edge is a 'gut feeling', then you may be heading for trouble.
Having a 'gut feeling' or instinct about a trade is OK but you have to be consistent with your instincts. That's why most successful traders advise you to keep a journal of your trades.
By keeping a record of exactly when, and more importantly why, you entered a trade, you're able to see patterns emerge. If you notice that a lot of trades are being entered based on a 'gut feeling' but that feeling has no consistency, then you need to re-think things.
2. Emotional Trading
This goes hand-in-hand with mistake number one above. Trading is an emotional and stressful endeavour, but only if you allow it to be. The same is true of anything in life and if you choose to see something as a 'problem' or 'difficult', then that's exactly what it will become.
If you're trading Forex because you've lost your job, are about to have your house repossessed or you're trying to make a ton of money so your ex-girlfriend will take you back... you should stop right now !
Trading under duress or extreme emotion is a sure-fire way to the poor house. When you trade emotionally you're mind can not be clear and you will not be making rational decisions.
You might get lucky at first and have a few winners but eventually the market will eat you up. The Forex market has an uncanny way of exploiting weaknesses and when it comes to trading that's exactly what emotions are.
3. Lack of Experience
Everything you've ever tried in life took some element of experience. Whether it was crossing the road for the first time or jumping out of a plane. If nobody taught you or you didn't learn from your previous mistakes, you're going to get hurt.
Trading the Forex market without gaining experience is just like the above two examples. If you go into it blindly you will eventually get hurt. Unlike crossing the road or jumping out of a plane, getting hurt in Forex won't put you in the hospital. But it can certainly feel just as bad.
If you're new to the world of Forex then you need to either seek the help of a more experienced trader or learn by yourself.
Opening up a demo account or even a small money account with ultra-low lot sizes, like a penny a lot, is a great idea.
Trade this way for a period of time until you feel comfortable enough and can see you have the skills to grow an account. Only then should you think about trading the Forex market for real.
4. Over Complicating a Simple Task
At it's most basic level trading is quite a simple thing to understand. If the price is going to go up, you buy. If the price is going to go down, you sell. If you've been trading for a while you'll know that there's more to it but essentially that's what trading is.
Many of the trading books, websites or forums, will make you believe that Forex trading is as complicated as brain surgery and if you're not making money, then you must be dumb.
They want you to believe that because they're in the business of selling education and that's really their only objective.
It's in their interest to make you feel stupid and to start believing that you have to have an intimate knowledge of every currency market in the world.
The truth is you don't and all those ideas accomplish is make the vendors more money while making you lose money.
Trading is basically simple so don't over complicate things.
5. Trading Without a Stop Loss
This is a fatal mistake and one that even experienced traders make.
You'll hear many reasons why trading without a stop loss is a 'good idea', but they're all a pile of horse manure.
The most common one I hear all the time is that the broker will see your stop and try to take your money? If that's something you've heard or even worse, something you honestly believe, stop right now and think about it for a moment.
The Forex market is a 5 trillion dollar a day market. Do you honestly think that the brokers are sitting there with their fingers poised, ready to steal a few hundred bucks from you?
Absolutely there are places that the majority of people will be putting their stops and brokers may manipulate their trading platform to grab them. This can and does happen but that's no excuse for not using a stop loss.
What that does mean though, is that you should be placing stops in areas that are not likely to be taken out by unscrupulous brokers. A better idea would be to change to a reputable broker but if you're like most people then that isn't an option.
If you trade without a stop loss you are leaving your account completely exposed in the market. One sudden move against you and you're whole account can be gone in the blink of an eye.
There are 'black swan events' that can and do happen. If one of those events happens and you've got no stop loss on your trade then you're doomed.
These are just a few of the most common Forex mistakes that traders make but their are many more. If you can manage to get these 5 mistakes taken care of then you're trading will definitely improve, that is a fact !