Forex Trading Mistakes You Could Be Making

If you are new to the world of forex trading, odds are you are about to make plenty of mistakes. Every forex trader that has reached any success today, has made mistakes in the past in order to build enough experience and practice to become such a success. There’s no shame in making mistakes as a novice in any field, but in order to save you a bit of time and trouble, here are the top three mistakes that you should watch out for.

1. Not averaging up

When you already have a number of shares in a certain company, and decide to buy more at a point when the prices for this stock have dropped lower than they were at the time of your first purchase, this is called averaging down. This is also called being cheap. In the world of forex trading, traders cannot afford to be cheap. As tempting as it may be to go for deals like stocks that you already own and are dropping in price, it is also important to think clearly about the consequences your decisions may have.

Ask yourself a couple questions before making this trade: what is the cause of this lower price? How will I benefit from even more shares in a company with dropping prices? What else could I be doing with my money? The thing is, it is highly likely that after your frugal inner-self has asked itself these questions, you will realize just how pointless these investments would have been.

Do not treat the forex trading market as you would Black Friday. Don’t go for the deals, don’t stick to discounted prices. Think clearly and put your money where it has the potential not only to thrive, but to grow.

2. Allowing news and predicted effects of news to guide you

Many people assume that they can predict the direction certain pieces of news will have on the market. However, it is unlikely that anyone would be able to predict such a heavily fluctuating, incalculable market, especially when particular news stories aren’t obviously positive or negative effects on the market, but rather could go either way.

Trading immediately upon hearing the news is a bad idea as well. This is an occasion where the market is likely to be at its most erratic, with several unpredictable changes occurring within a short period of time. Unless or until there is a clear, stable trend you are able to suss out, you are likely to lose more money trading at these times. Wait for some sign of stability, and then make your move.

3. Having over 1% capital at risk

You may assume that putting almost everything you have on the line means you will receive more in return. Unfortunately, this is not the case. Risk does not tend to correlate with a high rate of return. If, as a trader, you want to risk it all, you can. No one is stopping you from taking these risks. However, an experienced, professional trader would not advise you to have more than 1% of your capital on the line.

It is fundamental to create a plan outlining what percentage of capital you would be able to handle risking without losing too much of your funds. Setting an overall risk maximum as well as a daily risk maximum for yourself as a trader is one of the wisest choices you will make in your career.