Do You Make These Simple Mistakes in Forex Trading?

It wouldn’t be an overstatement to say that most people are looking for different options to make more money, in one way or the other. It is not particularly for entrepreneurial reasons but rather because most believe this is the only way to get some sort of financial security in the future, and escape the loop of living paycheck to paycheck. Some people invest in the stock market, embracing the volatility that comes with it, while others prefer the relative stability that comes with real estates. Then you have forex trading, which is the most accessible and also the biggest market in the world. While anyone can trade in currencies with the forex market, it is far from easy.

Do You Make These Simple Mistakes in Forex Trading? by CF Lieu - Certified Financial Planner Malaysia

There are some simple mistakes that you need to avoid to achieve any success. 

Going in without a plan

Like anything else in life, going in without a plan is a recipe for failure, and chances are you will fail if you do that. You need to have a clear plan on how you intend to trade. You have to set a strategy to help you find the right time to enter a trade, and more importantly, when to stop trading. It is also imperative that you plan just how much money you are willing to risk and to what extent. These are details that you cannot start trading without, or else the chances of your success are going to be pretty slim. 

Ignoring the numbers 

Forex trading entails a lot of numbers and statistics, the most important of which is your own win rates –– as well as risk-reward ratio. A professional forex trader needs to have a win rate of at least over 50%, which means you win and make money out of half your trades. One of the most valuable trading tips you could ever get is understanding when to walk away and never ignoring the numbers. If your win rate is declining, perhaps it is time to stop and review your strategy and plans. Any successful forex trader needs to know when to cut their losses, or else you can have your time in the forex market cut short because you ran out of money to invest. 

Not implementing a stop loss

One of the rather simpler, and most costly, mistakes forex traders make is not having a ‘stop-loss’ in place. The forex market can be quite volatile, and if you don’t have such an order in place, you risk losing a lot of money. The ‘stop-loss’ is an order that automatically takes you out of a trade if prices vary against your own stakes over a percentage that you specify. This is why it is critical that you implement this order as it takes much of the risk out of the equation and prevents any further loss of money on your end.

Thinking only about the profits 

This is one of the most common mistakes among forex traders, and it’s also among the deadliest. No matter how tempting the profit seems to be, you cannot let that cloud your judgment. Forex trading is all about risk management, and if you just keep your eyes fixed on the eventual prize, you stand to lose much. You need to thoroughly calculate how much money exactly you’re risking per trade, and you need to do it on a daily basis. The less your risks are, the more you can survive and the longer you can trade in the market. Most experts recommend applying the 1% risk rule, which entails not risking more than 1% of your account value on just a single trade.

Misreading the signs that a trade is losing 

Adding to a losing trade is something a lot of traders do, and it eventually costs them a lot of money. Sometimes, prices simply move against you, even when you think that you have made an absolutely sound choice. It is then that some traders keep pushing for more out of their confidence they made the right call, but this is a very risky thing to do. Prices can keep moving against you, and the longer you keep trading in such cases, the more money you will lose. It is always best in these cases to back off when the initial stop loss limit you’ve set is reached, no matter what your gut feeling might be telling you.

Do You Make These Simple Mistakes in Forex Trading? by CF Lieu - Certified Financial Planner Malaysia

Getting into the forex market is easier than the stocks or real estates, or most other markets for that matter. That comes at a price. If you don’t know what you are doing, and if you don’t avoid those very simple mistakes, you can lose a lot of money.

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