The Top 7 Deadly Forex Trading Mistakes.

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How many of these trading mistakes do you make? Mistakes are a part of trading and to be a successful trader you’ve got to increase your trading knowledge and learn how to avoid basic trading errors.

I) Overconfidence

This happens especially when beginner traders score a few wins in a row but it is also true for more experienced traders. The thrill of gaining pips in consecutive trades leads many traders to a feeling of immortality and then complacency steps in. Excessive risk taking and eventual margin calls are often the result of trading overconfidence.

II) Treating Trading Like Gambling

The gambling mentality of casting the dice and then praying to catch a huge windfall. This is done without due consideration for how global events, the actions of the world’s central banks or price action may affect the directional movement of the currency markets.

III) Revenge Trading

Every trader is in the business to win. But it is common knowledge that you will not win every trade. So to be successful, your trading plan should deliver results amounting to a net gain when winning trades are stacked up against the losing ones. A popular trading mistake is to discard the trading plan and enter trades solely for revenge just after the dreaded drawdown takes place. Negative emotions get in the way and pull traders along the path of hunting for a winner in order to cancel out losses incurred. The result is a shift from logical trade entries and exits to the need to soothe self-esteem and more often than not the trading account becomes a casualty.

IV) Chasing The Markets

The more successful traders plan their trade and then trade their plan at the appropriate time. Chasing down the market and getting into trades before a trading setup materializes is another basic trading mistake. Once you get in without a solid basis you are left to hope and pray that price moves in your preferred direction. This is risky business and stacks a potential loss as a highly likely outcome.

V) Too Many Open Positions

If you spread yourself too thin by entering many trades all at once, how well will you be able to manage these trades? For inexperienced traders it is better to start by entering into a small number of trades at a time so that you are better able to monitor them. More experienced traders are better able to navigate several trades at a time and some use the technique of trading instruments which move with positive correlation.

VI) Risking Too Much

One classic trading error is for traders to focus on how much they stand to gain if the trade goes in their favour, while ignoring the consequence of the trade going against them. This is characterized by risking a percentage of their account that is so big that a few unfavourable trades wipe out their accounts.

VII) Not Using A Stop Loss

A stop loss takes you out of a trade if the market goes against you and thus helps to preserve your trading account. Using a stop loss is recommended by trading experts. Discretion should be practiced whenever using one however because if it is too tight you will be taken out of the trade before the market makes its move in your direction.

If you can stay clear of making too many mistakes while trading, you’ll be on the way towards reaping the rewards of successful currency trading.

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Written by Ferl Ngningone


Ferl is a former Financial Analyst at BNP Paribas and a well-seasoned globe trotter. Besides trading online he enjoys traveling more than anything.