Foolish trade decisions make most traders to quit their careers.
Most investors are bright and intelligent people; otherwise, they would never have made the much they are investing, right?
However, sometimes greed gets the best of us and you see a perfectly sane person committing some heinous mistakes that tempt you to slap him from here till forever.
When it comes to forex trading, these foolish mistakes do not only eat into your capital; they have the power to destroy your very being, if left unchecked.
Here are ten of the most stupid yet surprisingly common mistakes forex traders commit.
- Holding On Too Long
This must be the commonest of all the foolish trade decisions. You made your analysis and it looked like a sure bet.
Everything was aligned properly and you were set to exit this trade with so much profit you were already looking at a Caribbean holiday.
Then pip by pip, your profits rose as expected, and you started thinking excitedly: why not let the profits pile up just a little more?
My dear friend, as we all know, a price reversal is inevitable and your careful analysis chose the specific exit point for a good reason.
Extending it on a greedy whim is a very bad idea sure to end in disaster.
- Too Tight Stop Loss
Greed is the monster that keeps you holding on too long. The second monster is fear.
He is just as cruel, ugly, and emaciating. This monster will get you so scared of taking a risk that you will put in a very tight stop loss order to minimize losses.
Stop loss orders were designed for that very specific purpose; to minimize losses.
However, having a too tight stop loss will deny you the chance of profiting from a price reversal and will only lock in minimal profits that are really not worth all the time you put into the trade. Man up and take carefully considered risks.
- Trading One Currency
You hear news that affects the Canadian dollar and jump in to make a trade on it. That’s all well and good.
Nevertheless, do not ever forget that forex trade means you buy one currency as you simultaneously sell another.
You need to be trading currency pairs, not just individual currencies. If you are right about one currency, you are only right about half the trade.
- Trading Off Hours
The forex market is a wonderful and profitable playing ground. It has the highest liquidity of any other market in the world and trades can be made 24 hours a day.
However, that does not mean you should trade ANY hour of the day. Choose the high liquidity periods when true market forces of demand and supply are in play.
These best hours to trade are when the three major markets of New York, London, or Tokyo are open.
Big financiers, speculators, and hedge fund managers play their own speculative games during low liquidity hours which render your market signals useless. Let them have their fun and keep to high liquidity market periods.
- Trading Against the Trend
The dollar value is falling and you feel you should buy as many dollars as you can because they are cheap. That is a very wrong and foolish strategy unless a price reversal is just about to happen.
Forex trading is profitable when you buy low and sell high, but not when you buy low and the price keeps falling until your account gets a margin call.
Go with the trend since no single person is cleverer than the whole market.
- Not Focusing on Current Trade
Forex trading begins with a dream and the brave set forth, take on risks, and achieve their dreams.
The problem with poor traders is that they get held up in the dream part. They start fantasizing about untold profits and even begin celebrating unachieved gains.
On the other hand, others get so worried about future losses that they are too gripped with indolence to make any meaningful moves.
Lamenting future feared losses or celebrating future fantasized profits is not a trader’s strategy. Focus on the prevailing conditions and make wise trade decisions for the trade at hand.
Build today and tomorrow will build itself.
- Too Many Details
Some traders get over-enthusiastic about their trades. They always have at least 4 different screens showing various financial data in front of them.
Their trading accounts contain many different technical analysis tools, indicators, and signals.
What this serves is to create confusion. It is possible to have just one computer screen with only two indicators on your price charts and be a successful trader. Do not over-complicate things.
- Quitting
All the hype surrounding forex trading may lead you to believe everyone becomes an overnight millionaire. It is no surprise that many new traders go broke within the first six months and quit trading altogether.
It is important to have the mentality of a winner, but also keep in mind that becoming a successful trader involves a learning curve.
Losses are inevitable and will be part of your whole trading life so accept them and get used to them. The trick is in managing your risks and losses as you keep pushing for profits.
- No Plan
This is by far the biggest mistake you will ever commit as a trader. Take time to build a comprehensive strategy which defines how you make our trade decisions, specifies when you make your exit orders, and regulates your entry orders.
Without a working plan, you might as well go to the nearest casino, put all your chips on black, and cross your fingers.
10. Deficient Knowledge
For sure you can make profits on guesses or go a step higher and profit from copying other social traders. While these short term strategies may work well for a while, you should not stick to them.
Take time to learn what moves different currencies. Learn the primary fundamentals and learn to recognize which news reports are of economic significance.
Once you know that, you will never again be satisfied with gaining a few pips just when the storm is getting calm.
You will know how to predict high volatility periods and enter trades just in time to reap the huge profits.
