This article was written by Yael Warman, Content Manager at Leverate.
It is often said that we learn from our mistakes. I believe that to be true. I believe that making a mistake isn’t necessarily a mistake. Repeating the same mistake however, that is a mistake. In trading, when a mistake isn’t corrected, it can turn into bad and unprofitable habits. Being aware of mistakes is the best way to avoid them, so in the interest of avoiding making mistakes, let’s take a look at which are the most common mistakes Forex traders make:
Yael Warman, Leverate
1) Treating FX trading like a hobby. Trading Forex does not have to be difficult, but there is a lot that goes into it if you want to succeed. Analyzing data, designing a strategy that works for you, testing different plans, educating yourself constantly, keeping records, being disciplined… These are things that most people going into trading feel as if they cannot be bothered with and that is why 99% of traders fail when trading Forex.
2) Expecting to get rich quick. With the availability of high leverage and low barriers of entry, Forex trading has been perceived as a way to make money quickly. Wake up and smell the coffee. Forex trading, just like any type of trading, requires persistence and discipline in the long run. Set long term goals and keep improving day after day and you will see consistent results.
3) Being inconsistent. Losing is part of trading. Accept it. Forex traders often change their strategy after only a handful of losing trades and this inconsistency sets you back on your learning and on testing your strategy. I’m not saying you should keep losing and you shouldn’t adjust your strategy if you realize it is not correct, but do not second-guess your strategy after every losing trade. Stick to your approach and evaluate your strategy in the long term.
4) Being caught off-guard. Sh-t happens. That’s right, sometimes, the unexpected catches you off-guard. Whether it is an unexpected black swan-type event, a sudden news release or your internet connection failing, things that you did not plan for happen and in a single moment, your entire trading account can be wiped out. That’s why we are so insistent in applying Stop Loss levels to your trades. All of your trades.
5) Not doing proper analysis. Successful traders analyze their trading session at the end of each day. They look at their trades, crunch numbers and plan ahead.
6) Analyzing performance on the short term. Although a successful trader should analyze their trading at the end of each session, performance is something that should be analyzed on the long term. Trading is a long term activity and you should not try to be profitable every single day or week, but rather focus on applying a method that has positive long-term expectancy and monitor the results closely.
7) Living in the past. Once a trade is closed, a trader should learn from it, but not live in it. Stop beating yourself up about why you exited so soon or why you entered so late. Stop finding reasons why this one trade should change your entire strategy. When determining whether you should make changes to your trading strategy, use a large enough sample of trades, not just one.
8) Holding on to losers. Traders tend to sell winning trades quicker and hold onto losing trades longer than they should. A successful trader doesn’t think what they could do with their current profit or what they could’ve done with the loss they would take. Successful traders set the correct SL/TP levels so they can avoid this common mistake and get rid of the emotion.
9) Being in it for the thrill. The Forex market goes up and down, sometimes fast and sometimes not so much, that is the nature of the business, but if you are trading Forex because of the thrill and thinking of FX trading as a casino, using terms like “boring” or “making a killing” when describing your trading session, you need to change something. Using the right language will help you get in the mindset of a professional trader and help you avoid emotional trading.
10) Hoping and wishing. Professional and successful traders need to rely on facts and actual data and when you wish or hope the market will behave in a certain way you are not doing your research and are showing signs of emotional trading.