In this article, we present 10 mistakes made by the beginner trader that is repeated most often. These mistakes are actually made by any trader, from beginners to veterans. It doesn’t matter how long it’s been on the market; From time to time, there will be lapses of indiscipline, either due to extreme conditions in the market or due to emotional factors. Knowing how to recognize and understand these situations is vital in order to be successful in trading.
Cut Profits, Let Losses Grow
By far the most common mistake when investing in Forex is to hold losing positions for a long time and to close winning positions too early (out of fear). Although you have a greater record of winning positions, the losers, although less, will represent a greater amount of money.
The key to limiting losses is to follow a trading plan that considers the risks and always use a stop loss. No one will be right all the time. The sooner you accept that having small losses is part of the day to day, the more time you will have to refocus and get winning trades.
Trade without a Plan
Opening a position without a concrete plan is an invitation to the market to take our money. If the price moves against the position and you don’t have a plan, you won’t know for sure when to cut your losses. If the price moves in our favor, it will not be known when to collect the profits. Making these decisions in the heat of the moment of having open positions is a good invitation to disaster.
Trading a plan is perhaps the most important step that a Forex trader can take, as it tries to largely eliminate the emotional part of making trading decisions.
Trade without a Stop-Loss
Trading without a stop loss is also a recipe for disaster. Here’s how a small, manageable loss can end up blowing up an entire account.
Using a stop loss is a vital part of a well-crafted plan that has specific and realistic expectations, based on prior analysis and research. The stop-loss indicates when a certain strategy is invalidated.
Move a Stop-Loss
Moving the stop loss to avoid being taken out of the position is almost the same as investing without a stop loss at all. It indicates that there is a lack of vital 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 winning direction, to consolidate profits that are being registered in the position. Never move the stop loss in the losing direction.
There are two ways to Over-invest.
- Investing too often in the market: Investing too often suggests that something is always happening in the market and that you always know what is happening. If you have open positions constantly, you are also constantly exposed to market risks. It is better to focus on finding strong and optimal opportunities, where the risk is lower and where a well-crafted plan and strategy can be applied.
- Keeping many 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 many of them are opening instinctively without control. Many open positions also affect the available margin, making it more difficult to maneuver in difficult market situations.
Over-leverage refers to holding very large positions with respect to available margin. Even a small market movement can be catastrophic in a position too large for available margin.
This common mistake is made all the more tempting due to the generous levels of leverage offered by online brokers. If a broker offers leverages of 1: 100, 1: 200 or even 1: 500, this does not mean that they should be used. Do not base your positions on the maximum available leverage.
Positions should be based on factors specific to the operation, such as proximity to specific technical levels or confidence in a specific signal to open a position.
Failure to Adapt to Changing Market Conditions
Market conditions are always changing, which means that the strategies you use must be flexible. You should always analyze the current market situation using technical analysis, to determine if it is fluctuating or in a trend.
Likewise, the use of technical indicators must be flexible. Neither indicator works well all the time. Different indicators and strategies should be used depending on market conditions. Some indicators work well in fluctuating markets, and others work better in markets with more pronounced trends.
Not Watching for Important News and Events
Even for those traders who rely exclusively on Technical Analysis for their operations, it is essential to be aware of the main news and events of the market.
If at a certain moment certain indicators are indicating the existence of a very good opportunity to open a trade, but in half an hour important news is expected that can move the market significantly, it would be unwise and very dangerous to open that trade. These types of situations are those that can occur if you are not aware of events and news.
Always have the economic calendar at hand and identify those events with the greatest importance that can affect your open positions.
No trader wins all the time. Some of the best traders even lose more times than they win. But when they lose, they lose little.
After a series of losses, it is better to wait a while for the market situation to stabilize and refocus on new opportunities. Avoid making the mistake of investing defensively and trying to recoup or avenge losses.
Have Unrealistic Expectations
Nobody is going to retire with the result of a single operation. The key is to make a profit as you gain experience. You must be flexible and manage to accommodate yourself to market conditions. It is a bad idea to have goals in the beginning about how much money you are going to earn. By having expectations about specific amounts, and being in a position where those expectations have not been met, it is very common to be tempted to open larger deals to achieve the goal. In the end, the result will be a bigger loss.