There are many mistakes that new traders make in Forex trading. These trading mistakes cost heavily. However, traders must not think of losing as a failure and should always try to rectify their mistakes. Let’s review some of the common mistakes made by new Forex traders.
Holding on to the Losing Trades
One of the biggest mistakes that new traders make is holding on to a losing trade for too long. It means they increase their losses and miss out on more significant gains.
They must learn to be courageous enough to cut the losses quickly. It will allow them to reposition by taking a better entry and make them disciplined enough to move to the next trading stage.
Trading Without Adequate Knowledge
Often, traders are tempted to rush into trading before they have adequate knowledge and experience of the market. It causes them to miss out on seasonal trends or the timing of data releases and can lead to a costly lesson.
To avoid making these mistakes, research and learn about the market before you start trading.
Forex Trading is not Get Rich Overnight scheme
New traders usually believe that Forex trading is a get-rich overnight scheme. However, it is a totally wrong approach and causes new traders to lose their trading capital more quickly. Learning Forex trading is a long process. It takes countless hours of experience to become a pro trader.
Using Excess Leverage
Excess or over-leverage occurs when traders take a larger position relative to their available trading capital. It can lead to catastrophic losses if the trade turns against the trader. Most traders consider the profits they can make from a single trade before considering the risks involved. A modest leverage ratio of 10% or less is a safe rule of thumb.
The use of high leverage should be avoided when you are new to trading. Higher leverage increases the risk of a trade and can lead to irrational decision-making. True leverage is the percentage of account equity you risk for each trade. In a study, traders using true leverage of five to one were more profitable than those using 25:1 leverage. Most professional traders use low leverage levels and rarely go above 10:1.
Blindness to reality
Forex trading involves high risk, and most new traders ignore this fact. However, trading in Forex is not a simple task, and there is a blind spot that you must avoid. The Thinking Brain bias causes this blind spot. It allows traders only to see what they want and is not conducive to the health of their trading account. It can lead to over-trading, revenge trading, and fear of missing out (FOMO).
A typical example of a blind spot in trading is when a trader increases the position size thinking of a big profit. The trader is unaware that this is not a good strategy. It leads to chaotic decisions.
Ignoring Risk Management
Ignoring risk management in Forex trading is the biggest mistake new Forex traders make. The importance of risk management cannot be ignored at any stage. Even a single poorly executed trade can wipe out a trader’s entire account. it means that traders must set proper stop-loss and take-profit levels and abide by their risk management rules.
The Forex market moves by hundreds of pips a day, making it difficult to control risk and requiring a deep understanding of the market and proper risk management tools. Traders who have made a living in Forex trade know that risk management is vital to avoid account blowups.
Not accepting the Mistakes
Most new traders do not accept their mistakes in Forex trading, leading to even bigger losses. Traders should always remember that losing streaks happen and must accept and rectify the mistakes to succeed in Forex trading. They should not increase the size of their positions or start revenge trading in a losing streak. It’s often a good idea to take a break from Forex trading just to relax, identify and accept the mistakes.
Trading without a proper trading plan or strategy
New traders often start trading without a property trading plan or a trading strategy. It is one of the biggest mistakes they make, and it leads to substantial losses. New traders must develop a trading plan that outlines a risk-to-reward ratio and a strategy to enter and exit the market.
A proper trading plan or strategy includes using the take profit and stop-loss at the right market levels. It may also include diversification, multi-timeframe analysis, and using the right technical indicators.