There is no doubt that Forex has become one of the more interesting market for up-and-coming traders who are looking to diversify their investments and play the largest market in the world. That being said, trading currencies is a uniquely complex type of trading and it is no wonder many traders get it wrong, especially when they start out. Today, we will be looking at the more common and devastating mistakes that Forex traders make and how you can avoid them.
1. Jumping into it
There is no market out there that is welcoming to would-be traders who know nothing about it. It doesn’t matter if you wish to trade stocks, binary options or securities, you need to know at least the basics. With Forex, this becomes even more important, since it is a highly complex market and trading on it can be quite complicated.
The good news is there is no shortage of literature on Forex, including various articles, guides and entire websites dedicated to the market.
Spend at least a week or two familiarizing yourself with the basic concepts and perhaps even some more advanced strategies before you reach out to a broker.
2. Using the wrong broker
Another huge mistakes new Forex traders make is that they sign up with the first broker they come across without further research. You cannot trade Forex without a broker, which means that finding the right one has an enormous impact on all of your future trading.
There are at least a few things you will want to research when comparing different Forex brokers.
First and foremost, you will want to check that they are licensed by the licensing organization in their country of origin. For example, if you do Forex trading in Australia, you will want to find a broker that is license by the Australian Securities and Investments Commission (ASIC).
You will also want to check which trading platforms they use and what their trading software is like. Furthermore, you will want to ensure they work with reputable banks, which ensures liquidity.
In addition to this, you will be checking out how varied their trading accounts are, what kind of leverage and spreads they offer.
Only once you are 100% on them, should you decide on a Forex broker firm.
3. Not being meticulous
You can lose a lot of money with Forex trading if you are not careful and the best way to ensure you do not lose money is by being almost painfully meticulous.
This will start with formulating your trading plan and strategy. It will also involve being cold-headed and careful when getting into trades and only trading when you have all the facts.
Furthermore, this will mean that you will not rush into trades or start trading with money that you do not have.
You should always run a journal of all of your trades and you will want to analyze your past trades as much as you can. All the best Forex traders get invaluable data from their past trades, regardless if they were successful or not.
4. Trusting “sure things”
There is no sure thing in Forex trading. There is no magic bullet that will work every single time. There is no snake oil. There are no sure tips and shortcuts to amazing trades. Forex trading is about hard work and learning, learning and more learning.
Anyone who is trying to tell you there is this “one thing” that will make you rich is trying to sell you something. They may be just building up to it, but there will come a point when they will try to sell you something.
Never trust snake oil peddlers.
5. Getting emotional
Despite their best efforts, even the world’s most successful traders sometimes experience emotional reactions to the outcomes of their trades or the prospects of future trades. The thing that separates them from the bog-standard traders is that they do not act on those emotions. They accept them, live through them and get back to making trades based on data and facts.
This is the only way to make successful Forex trades – by making data-driven decisions that have nothing to do with your feelings, hunches or superstitions.
It may seem silly to even mention this, but you would not believe the number of traders who jump to conclusions and make decisions driven by their emotions and other arbitrary factors.
Be smart and make only those decisions that are based on cold, hard figures.