Question: The top 10 mistakes made by novice traders in Forex Trading

Question: The top 10 mistakes made by novice traders in Forex Trading

Answer

In this article, we present 10 beginner trader mistakes that are repeated more frequently. These mistakes are actually made by any trader, from beginner to veteran. It doesn't matter how long you have been in the market; from time to time you will experience indiscipline fouls, either due to extreme market conditions or emotional factors. It is essential to recognize and understand these situations in order to be successful in trading.

1. Cut profits, let losses grow

Usually, the most common mistake when investing in currencies is holding losing positions too long and closing winning positions too soon (usually out of fear). Even with a greater number of winning positions, the losing positions, although fewer, will represent a greater sum of money.

The best thing we can do to limit losses is to follow a risk-aware trading plan and always use a stop-loss. Normally, no one will always be right. It is better to accept that some losses are part of everyday life, the longer it will take to refocus and obtain winning trades. Take more risk on your unrealized gains than on your unrealized losses.

2. Trading sans plan d'action

Opening a position without having a concrete action plan is unwise, and the market will surely take our money. If the price moves against us and you don't have a plan, you won't know for sure when to cut losses. If the price moves in your favor, you won't know when to cash out the winnings either. Making these decisions in the heat of open positions is a good invitation to disaster. Trading with a plan is perhaps the most important step a Forex trader can take, as they try to largely eliminate the emotional part when it comes to making trading decisions.

3. Trading sans stop loss

Running without a stop loss is also a recipe for disaster. This is how a small manageable loss can end up blowing up an entire account. Using a stop-loss is an essential part of a well-designed plan that has specific and realistic expectations, based on prior analysis and research. The stop loss indicates when a given strategy is invalidated.

4. Modify the stop-loss

Moving the stop-loss to avoid being taken out of position is almost the same as investing with no stop-loss at all. This is a sign of an essential lack of discipline, which will unequivocally result in losses in most cases.

The exception to the rule that allows you to move a stop-loss, is when it is done in the direction of gain, to consolidate the profits that are recorded in the position. Never move the stop-loss in the direction of the loss.

5. Overtrading

There are two forms of overinvestment.

- Investing too often in the market: Investing too often suggests that something is always happening in the market and you always know what is happening. If you constantly have open positions, you are also generally exposed to financial market risks. It is much better to focus on finding good and strong opportunities, where the risk is minimal and a well-developed plan and strategy can be implemented.

- It is better to hold several positions open simultaneously: Having too many positions open at the same time is an indication that you probably do not have a good trading plan and that many of them open instinctively without control. Many open positions also affect available margin, making it more difficult to maneuver in difficult market situations.

6. Excessive leverage

Over-indebtedness refers to the fact of holding very large positions in relation to the available margin. Even a small market move can spell disaster in a very large position relative to the available margin. This common mistake is made all the more tempting by the generous levels of leverage offered by online brokers. If a broker offers a leverage of 1:100, 1:200 or even 1:500, it does not mean that they should be used. Do not base your positions on the maximum leverage available. Position sizes should be based on trade-specific factors, such as proximity to specific technical levels or confidence in a specific signal to open a position.

7. Not adapting to changing market conditions

Market conditions are constantly changing, which means that the strategies to be used must be flexible. The current market situation should always be analyzed through technical analysis to determine whether it is fluctuating or trending. Likewise, the use of technical indicators should be flexible. No indicator works well all the time. Different indicators and strategies should be used depending on the market conditions. Some indicators work well in fluctuating markets, while others work best in markets with more pronounced trends.

8. Not being aware of important news and events

Even for traders who rely exclusively on technical analysis, it is essential to be aware of major market news and events. If at any given time certain indicators point to the existence of a very good buying opportunity, it is possible that important economic news will move the market significantly in the opposite direction. This kind of situation can happen if you are unaware of events and news. Always keep the economic calendar handy and identify events of ma