Common Mistakes in Forex Trading: Rookie Habits to Avoid
It’s so easy to get excited about forex trading that a lot of rookies commit mistakes that cost them significant money. Experience may be the best teacher, but we want to help you avoid losing your initial investment and enthusiasm for forex trading by giving you a heads up on three common mistakes new traders make on our platform.
Not having a trading plan.
The best way to stop yourself from impulsive trading is to have a trading plan. It outlines your objectives, which tools and timeframes to use, what signals to watch out for, how much you’re willing to trade, what your risk to reward ratio is, which currency pairs to trade, and so forth.
This might sound overwhelming if you haven’t started developing your trading plan yet. That’s what our advisers at Fair Forex are here for. If you have questions about identifying signals, interpreting indicators or how to use the tools at the Fair Forex platform, you can talk to professional traders through our telegram chat group.
Trading too much, too often.
One lesson that traders will earn over time is that trading more doesn’t make you earn more. It’s the other way around, in fact: the less you trade, the more you can earn.
Here’s the root of this rookie mistake: traders look for the smallest reasons to trade instead of assessing if a potential trade may not work out. This doesn’t mean that traders should develop a low-risk appetite, simply that savvy traders enter the market when the time is right, not when they have money to buy currencies with.
For beginners, it would be unwise to enter multiple trades at once. You’re still feeling the market and learning how to read charts and read trends. Even experienced traders keep their trades to a manageable few: it gets increasingly difficult to keep a watchful eye over your accounts with each additional trade.
Overthinking your strategy.
The polar opposite of entering the market at the slightest incentive is entering the market only when there is absolute, sure proof of generating gains. It’s impossible to be 100 percent sure about the outcomes of a trade, to begin with. Although it is possible to predict the movements between currency pairs, the current patterns can always change in just a few months.
For example, JPY (Japanese Yen) and CHF (Swiss Franc) are sometimes seen as “safe-haven” currencies that appreciate when the world faces an economic crisis and other currencies lose value. They don’t typically turn volatile even when there are major market movements. However, analysts have rated gold and US bonds higher than the Franc as safe-haven assets in 2020. As for the Yen, it is a crowded market which could mean lower yields for traders.
It’s understandable to heed the widely-accepted practices in forex (e.g., JPY is a safe-haven currency) on the one hand and then weigh its cons on the other (e.g., JPY trades are crowded markets); but if you focus too much on the bigger picture, you could lose sight on the opportunities that are right before you (e.g., taking advantage of the daily fluctuations in USD/JPY rates and buying and selling Yen at the right time).
Another danger of over-examining charts and trends is you might look for trade signals when there are none. This puts you in danger of trading where you normally wouldn’t if you followed your trading plan.
It’s natural to make mistakes in forex. Even the most seasoned traders can’t avoid them sometimes. The important thing is to learn from them. Of course, you gain an advantage if you can recognise potential mistakes before making them. May this article serve that purpose as you learn to become an expert forex trader.
Interested in starting forex trading? Browse our website to learn about our trading accounts and tools. If you have questions, contact us via email, phone or website form to get expert advice.