Top 4 Mistakes Made by Forex Traders and How to Avoid Them
When you learn that over 95% of Forex traders give up because they lost more money than they earned, you may start wondering if entering the currency market is worth the risk. However, minimizing loss and making a profit can be made much easier if you know how to avoid the major mistakes made by traders.
- Starting Too Small
You will often hear that you don’t need to invest a lotto make it in Forex trading. While this is true, it’s still possible to start too small. You can’t set up an account with $100 and expect it to earn thousands in profits.
Have some money set by before you start trading. Shelling out $1000 or more can be scary, but that’s a reasonable amount to start with. You just have to protect your investment by practicing extensively with demo accounts before doing real trading.
- Doing Too Much
Newbies often make the mistake of overtrading, or jumping at every chance to make a trade whether or not it’s actually profitable. This can produce satisfying short-term results, but you’ll actually accumulate more losses and transactions costs over time.
Trade only when you can calmly analyze the situation. If you’re feeling too hyped up or nervous, it’s a sign that you should walk away for now.Remember, currencies move every day so you just need to wait for the next chance to come along.
- Lack of Risk Management
The lack of proper risk management is probably the main cause of Forex traders giving up on the industry. When you risk too much of your capital on a trade, it’s all too likely that your inevitable losses will outweigh the money you make.
You need to determine beforehand how much money you’re prepared to lose on each trade. By making sure that you’ll lose only a tolerable amount per transaction, you’ll protect your capital and avoid the dangerous emotional hang-ups brought about by a trading loss.
- Trading Against the Market
It can be tempting to trade against the market in hopes of making a bigger profit if things go your way. If you do this, the losses you incur won’t be worth the bragging rights of making one right prediction out of 20 attempts.
Don’t fight the market. Choose your positions based on the trends relating to the currencies you hold, and leave wild speculation to gamblers.