Top 6 Mistakes to Avoid

A majority of Forex trading mistakes are caused by poor judgment, lack of knowledge and preparation. If you are unaware of where the traps are you cannot help but to fall victim to them.

Being well informed on how to avoid common mistakes and traps will enables you to become a solid and knowledgeable trader. The Legacy FX team wants you to be a strong and knowledgeable trader, to help you become that our team has put together a list of the Top 6 beginner mistakes to avoid.

#6 TRADING WITHOUT A PLAN

We like convince ourselves that knowing how to trade is as simple as spontaneously clicking on a chart. Simply put, this never works! If there is a single hard and fast rule in Forex it is never trade without a plan. Every position taken without a plan is gambling, NOT trading. Forex trading should never be a spontaneous endeavor.

A trading plan means, at the very least, setting clear entry triggers and exit levels. You should also know in advance why you are placing a specific trade. Such as, is there a News event coming out that can impact your current open positions? Have technical indicators shown this to be the right move to make? Know what you are trading and why you are trading it.

Take the time to analyze the market and write down a detailed trading plan. Make sure that it includes everything needed to consider your trading decisions. Working off of a trading plan will reduce the tendency to second guess and make superfluous adjustments to positions already taken, a common tendency from novice traders.

#5 EMOTIONAL TRADING

Inexperienced traders tend to follow the same pattern. They trade emotionally, lose money, get more emotional and lose even more money. Emotional trading is often the reason traders use robots to do their work for them.

Are you an emotional based trader? When you let your emotions get involved, your judgment gets clouded.

Trading is about making decisions based on cold, predetermined and well-weighted probabilities. Ensure your trading psychology is well balanced. The trick is to leave your emotions aside when you enter the trading zone.

#4 NO MONEY MANAGEMENT STRATEGY

Trading should be taken seriously, just like any other business. Do you have a plan on how you will build your account? How much of your profits will you reinvest into your account and future trades?

One of the reasons beginners find trading to be frustrating is that they fail to implement a money management strategy. A money management strategy is the business aspect of trading. It should outline how you treat your capital after you get started.

A clear money management strategy will help you build your capital. You should know if and when you will be withdrawing from your account. It is also important to find out what charges you will incur directly from your trading activities and account for them. These outflows must be incorporated into your overall plan to build up your account balance.

#3 OVER LEVERAGED

Leverage is a double edged sword that cuts sharper when it moves against you. Long term success in trading is greatly enhanced by using leverage sparingly.

Over- leveraging has been the downfall of many traders, losing their profits and zeroing out their accounts.. Beginners eagerness causes you to increase the size of a position more than you normally would. When the trend moves slightly against you, the losses hurt even more. The prospect of making a killing in just one trade is what causes many traders to over-leverage.

You can avoid the temptation of over leveraging by setting maximum limits for every trade and never exceeding them. Most professional traders never leverage their positions more than 8:1. Your sweet spot should be somewhere around this ratio.

#2 OVERTRADING

Engaging in excessive trading can punish inexperienced traders in the most cynical ways. No sooner have you made a huge profit in one trade you give it all back in the next few trades that you make. Rookies can become preoccupied with mimicking any successful trade they make.

Similarly when a trader takes an abnormally large loss, or a series of losses, they begin to focus on recovering their money. This practice is called revenge trading and is a sure way to cloud your judgment and lose more money.

The dramatic change in your capital will affect your judgment, no matter whether you can feel it or not. Whenever there is a 10% or more change in your capital, (in either direction) in a single day, it may be a good time to stop trading and clear your thoughts, even if you’ve just logged into your platform. Remember that there is always tomorrow.

#1 IGNORING DEMO ACCOUNTS

Some newer traders jump prematurely into live trading environment and quickly lose their money because they have failed to develop their skills on a demo platform. Without demo trading, traders have no way of assessing their own trading expertise.

Demo trading is boot camp for Forex traders. Demo trading gives you a risk free way to practice and profit without risking your own capital. The trick is to take demo trading as seriously as you would a live account. Otherwise, what’s the point.

Conclusion

In Forex trading there are many traps that you can fall into. Eventually every trader comes to realize that your account could very well be wiped out if you fall into any one of the six traps outlined above.

That being said, you are now in a great position where you can avoid these six common mistakes. Being well informed and keeping a clear and level head is the best way to ensure your long term profitability in Forex trading. Click here to contact a Legacy FX representative or to open an account.