Trading the Forex market is hard. Extremely hard. While some people say you never master it, others believe that it’s the fast road to riches. Both are quite wrong, but what’s important is to realise that no matter how experienced a trader is, mistakes are simply a part of the process. The reality is, you need to accept that you’ll make mistakes when trading. I know, it’s easier said than done, right? That’s why I’ve put together a list of common trading mistakes that should be avoided.
- Trading without a plan
This is probably the first mistake that a trader will make. Having a predefined trading plan helps for numerous reasons, but most importantly, it gives you a set of rules to adhere to. Give yourself a to-do list, and that’s exactly what you’ll do. It keeps you from making unnecessary, unplanned trades.
This one’s a bit of a double edged sword… When you’re on a winning streak, leverage is your best buddy. When that changes, it’s your greatest enemy. The thing about leverage, is it can make someone believe that they’ll make money, faster. And, sure, while there’s some truth the this, it also means you can lose money in your forex trading account much faster.
- Staring at the screens
Sometimes the hardest thing to do is sit on your hands. When there are no trading setups occurring within your trading plan, the temptation to ‘force’ trades can arise. If there’s no valid setups, don’t trade. Step away from the screen and your bottom line will benefit.
- Revenge trading and patience
Human nature dictates the need to always be correct. So what happens when we’re wrong? We try to compensate for it. And often this manifests itself through revenge trading. As traders it’s important that we wait patiently for the best opportunities to line up, and then pounce with purpose.
- Ignoring the trend
Probably the most cliché of all the mistakes we’ll touch on today, but seriously… the trend is your friend. We’re not in this game for the thrills, all too often the more boring a trade looks, the better it is. Always take note of the trend before placing a trade.
- Directional bias
Once a trader is in a losing position, it can be hard to realise that it will slowly accumulate into a substantial loss. That’s why one of the more important lessons in trading is to develop objectivity. The key here is to have strong opinions, loosely held. React, don’t predict.
- A lack of preparation
This sounds like a no-brainer, but it’s important to consider some super simple things like whether your keyboard or mouse is charged properly. Or is your trading desk set up in a manner that minimises distractions. A small flaw can have a large impact.
- Emotional instability
Trading the forex market is like stepping on to a vicious battlefield. If you’re not emotionally and psychologically prepared for what the market may have in store for you, you’re basically walking into a war-zone without a sword in hand. Fortunately, all you need to do is tick of these three things:
- Be Calm.
- Have a good night’s sleep.
- Prepare for a challenge.
- Money Management
Another easily avoided mistake traders make is the lack of a robust money management plan. Because losing trades are unavoidable it’s imperative to ensure that no single loss, or string of losses will destroy your account.
- No trading journal
Keeping a record of your trades is a vital key to your success. Every trade, win or lose, should be recorded, noting the reasons you took it, how you felt about it, targets, entry, exits, everything. This is the fastest way to grow and evolve your trading, and boost your profitability.
There’s no way to guarantee that any particular trade will result in a profit which is why mitigating the above listed behaviours is so important. Trading is a continuous process of making more profit than loss, which at the end of the day may not win the battle, but it will win the war.
Source: Vantage FX Blog