This article will help new traders and veterans to check their trading strategies and trading styles for common mistakes made by traders that reduce profitability and make forex harder than they should. These tips will help all our traders, new or experienced, trade better, and get more profits.
Error # 1: Over-leveraging
Perhaps the most common mistake traders make is overleveraging - or risking too much of their capital in one trade. Traders often over-leverage by simply placing trades that are too large for the size of their account, or by opening too many small trades. Opening a few small trades is very dangerous when these trades are all correlated. For example, when a trader opens a short trade in AUD / USD, NZD / USD, AUD / JPY and NZD / JPY, the trader now has four positions which will very often move in the direction at the same time. This means that if a trader is wrong in one trade, he may be wrong on all four - causing a large loss.
The 3% rule
A general rule that is good for traders to follow regarding overleveraging is the 3% rule. The 3% rule states that if all trades open trades must be stopped, the total capital loss should not exceed 3%. That means traders must find out how much capital each trader will collect if it is a loser and only open trades that traders can guard while remaining within 3%. A good trader, basically, must be pessimistic and prepare for the worst - every trade is a risk and must be treated as such. A trader who is overconfident, a trader who opens a lot of correlated trades, or opens several large trades will blow up their account, the only question is when.
Solution for Overleveraging
There are several ways in which traders can adjust their trade to avoid overleveraging and comply with the 3% rule. First, a trader can take less trade, thereby preserving capital. Or, traders can reduce the size of their trade, and trade fewer lots per trade, allowing them to open more trades. The key to avoiding overleveraging is awareness and willingness to do mathematics. Always pay attention to how many trades you open, and how much capital will be lost if all trades are against you. Traders must realize how much they are risking, to preserve capital.
Mistake # 2: Failure to Consider All 3 Elements of Commerce
Trade Elements
There are three elements that are equally important for each trade, each of which is equally important for the long-term success of a trader. Unfortunately, most new and unsuccessful traders only pay attention to one, or at most these two elements. The three elements for each trade are as follows: (1) entry (price at which trade is entered), (2) stop (price at which trade exists for losses) and (3) target (price) where trade exits to get profit). All three are equally important for the success of traders, but most new traders only pay attention to entries and may stop.
Entrance
Forex traders will often pay attention to the entry price, but often for the wrong reasons. The right entry is very important for forex traders. It's not enough to sell a pair because you think it will go down eventually - the more the entry, the tighter it stops, and the less risk per trade. The goal of each entry must enter the market at a price that is close to the price at which you will stop you as much as possible. This often requires patience and can mean that the trader loses trading occasionally, but what matters is minimizing your risk.
Stop
New traders usually don't make fatal mistakes because they don't use stops, but most new traders don't use stop correctly. Dismissal must be set at the level where the trade settings are invalid. If you do not know at what level the settings are invalid, you may not switch the setup. If the rate at which trade arrangements become too far does not apply to your risk management plan, reduce the size, or do not change settings. Too many traders are correct in their analysis but stopped because they did not stop above the cancellation rate. Other traders throw money away stopping far beyond the rate of cancellation, which means they lose more money than is needed to switch settings correctly. If you don't know where your stop should be, then the preparation is not sure enough to trade, and you must continue trading. Termination is intended to protect traders, making sure they protect you as best they can.
Goals, goals
The target is part of the trade equation that most new traders ignore completely. In order to succeed in trading, traders must have a risk of a good reward ratio (r / r). Targets are important elements of this ratio. Many traders, when asked about their targets, will say "higher" or "lower". Others will use multiples of their stops - targeting 100 pips if they have 25 pips to stop, so they have a ratio of 4-1 / r. While this second approach is preferred to say "higher" or "lower", it is still flawed. It's easy to set a target of 1,000 pips to give you a large r / r ratio, but if the target will never be hit, the trade is doomed from the start. So how should the target be set? Just like every setting has a level where the setup is invalid (which you have to stop); each setting also provides a target. Sometimes the target is the result of the measured movement, and sometimes it is only the next main support or resistance area. Traders must place their targets in this price zone, to maximize not only the number of pips obtained but also the possibility of the trade reaching its target. If the reasonable target is close to the entry then the cancellation rate, this means the r / r ratio is below 1: 1, and the trader must continue trading. Always look for settings with well-defined stops, well-defined targets, and entries that give a risk-reward ratio (minimum 2: 1).
Mistake #3: Moving Your Stops
Now that we have discussed what stopped, and how they should be placed, we need to discuss other major mistakes made by new traders when they stop. Nobody likes to be wrong, and no one likes to lose, but unfortunately, both being wrong and losing are the main parts of being a forex trader. The problem that new traders (and even some more experienced traders) often face is that they allow their reluctance to go wrong and lose their trade arrangements. If the trader stops it correctly, at the rate of cancellation of their trading arrangements, there should be no reason to move the dismissal. Traders will often expand their stops to avoid stopping (losing), because natural reluctance to be wrong. Stops must be placed where they are for a reason, and if so, may not be moved. Widening stops causes greater losses and destroys the risk/reward ratio which is very important for trading. Place your stop at a meaningful price, and then don't touch them. Accepting that being wrong and losing is part of being a trader; the most important thing is to maintain your capital for future use.
Mistake #4: Taking Profits too early
While many traders make the mistake of moving their stops, the same number (or more) makes the mistake of moving their profit target, or manually closing their position, before the profit target is reached. Sometimes there are good reasons to do this, a piece of news, for example, but often traders take advantage because they are afraid of losing the money they have made. The problem with taking profits too early is that it changes with the risk/reward ratio, which means that traders risk more money than they produce. In the long run, this is a recipe for disaster. While forex traders must always look for opportunities to reduce risk, they must do it carefully.
Balancing Reducing Risk and Taking Initial Profits
The goal in forex trading is making money, and taking profits is the best way to make money. However, by saying, taking profits too early is the best way to lose money in the long run, because winning trades will make less money than losing trades will lose. The key is to take part in profits but to take into account some of the benefits in your trading arrangements. If a trader tends to take half of their profits at a certain level, make sure the risk-reward ratio for all trades is still positive, even considering partial profit taking. In addition, traders need not be afraid of sudden movements in the market and close profitable trades in panic. Traders must trust their arrangements, and follow the plan.
Mistake # 5: Not Having / Not Following the Trading Plan
Trading plans are very important for all traders, new and old. A trading plan must put not only the traders' arrangements that will be seen to trade but also the risk management strategies of the trader. For example, a trading plan must include weekly, monthly and quarterly pip targets, the maximum amount of capital that is willing to lose in a given week, month or quarter, the pair of traders will trade, the maximum number of trades traders will take at one time, and other things that may be important for the success of traders. Trading plans don't need to be too complicated, but they need to be created and followed. A trader must know exactly what he is looking for, how much they want to take risks, and how much they want to do. Trading plans are very important for trading success. Holding on to the trading plan is just as important. Sometimes holding on to a trading plan means continuing trade, or even stopping trading for a certain period of time. Although important, for long-term success.
Mistake # 6: Ignore the Larger Time Frame
Many new traders choose smaller time frames, such as five-minute and fifteen-minute charts, because that time frame has more movement, more settings, and more trade than slower long-term charts. Unfortunately for the new traders, slower, longer graphics almost always outperform shorter periods. Often, traders will see perfect picture settings on a 15-minute chart, only to suddenly fight them for no reason that can be seen, stop it in the process. Often, this reversal can be easily anticipated by looking at a four-hour or daily chart for the main moving averages, Fibonacci levels, trend lines or horizontal support or resistance. This higher time frame will almost always beat their shorter counterparts, and traders must always be aware of a larger time frame when placing trades. Before taking a trade, see the pair you are trading in a number of different time frames to see what level is important.
Mistake # 7: Thinking of the Market is "Wrong"
The classic example of this classic error is currently underway because the financial crisis in Europe drags on, traders will often lament every increase in the Euro as "bullshit", and claim that it makes no sense. Traders also often claim that any power on the S & P 500 is absurd, or "wrong" because the American economy is suspected of being weak. The market, however, is never right or wrong - rightly so. If a trader loses certain currency or stock trading money, then the trader is wrong, not the market. The trader must remember that the market will do what will be done, regardless of whether or not it makes "sense" to you as a trader. What trade does the market do, not what you think the market should do.
Mistake # 8: By Assuming Support Will Disconnect / Hold Will Not Hold
Similar to Error # 7 and error # 9, below, traders often assume they know what will happen on the market, and trade based on their assumptions, rather than price action. A trader will see prices go down to test the rising trend line, for example, and start shorting, to anticipate the trend line. Sometimes, they will be right, and the trend will break. More often than not, prices will at least bounce off the trend line - maybe stop our traders, before continuing lower. Traders cannot assume they know what the market will do, before doing so, because it makes it more difficult to control risk, and it blinds a trader to good trading which is contrary to their bias. Trading prices, not what you think prices will be done.
Error # 9: No Waiting for Confirmation
Actually, there are two types of confirmations that traders must wait for, but no. The first mentioned above, at # 8; that is, assuming the level of support or resistance level won't last, rather than waiting to fail. That
Mistake # 10: Trade for Sake of Trading
Forex trading can be very similar to gambling, and like gambling, it can become addictive. If a trader trades only because they are bored, or because the market is open and nothing else happens, he will soon find themselves bankrupt. Making money trading is difficult, and to succeed, a trader must be disciplined. Sometimes arrangements take days and weeks to develop, and sometimes they never succeed. Chasing trades or guessing randomly on the market is a waste of capital and serious obstacles to successful trading. Discipline, and make sure you only trade when you have a strong arrangement to trade, not because there is nothing on TV.
Conclusions
Sadly, this list covers only a fraction of the multitude of mistakes made by forex traders. Here at TradeSafe121, we encourage all of our visitors to talk to our strategists, traders, and experts on how to improve you’re trading. We hope this list is useful to you, and we look forward to working with you for a long time to come.
May the pips be with you!
TopAsiaFx.com helps you compare and choose your preferred Forex Broker. We suggest keeping the following checklist in mind when making your decision:
- Is the Forex Broker regulated?
- Account Details: Ideally, your broker should offer either a selection of account types or some element of customizability. Competitive spreads and easy deposits/withdrawals are good indicators too.
- Number of Currency Pairs offered: The variety of currency pairs on offer, as well as the quantity, should be considered (the more of both, the better).
- Availability of Customer Service.
- Quality of the Trading Platform: look for a platform that is easy to use, straightforward and offers a collection of technical and analytical tools to enhance your trading experience.
Rank Broker Name Special Offer Minimum Deposit Spread User Score Maximum Leverage Regulation Start Trading 1 NordFX 55% Deposit Bonus $10 0.0 Pips 96 1:1000 VFSC Open Account 2 SGT Markets Refer a friend $10 $500 0.0 95 1:400 IFSC Open Account 3 OctaFX 50% Deposit Bonus $100 0.4 94 1:500 IBC Open Account 4 Exness No $1 0.1 93 1:2000 FCA,CySEC,IBC Open Account 5 IC Markets No $200 0.0 92 1:500 ASIC Open Account 6 Tickmill $30 Welcome Account $100 0.0 91 1:500 FSA,FCA Open Account 7 Axiory $50 Deposit Bonus $200 0.0 90 1:400 IFSC Open Account 8 Justforex 100% Deposit Bonus $1 0.0 89 1:3000 IFSC Open Account 9 ThinkMarkets No $250 0.4 88 1:400 ASIC,FCA Open Account 10 XM $30 Welcome Account $5 0.0 87 1:888 ASIC,FCA,IFSC Open Account 11 FBS $50 Welcome Account $1 0.0 86 1:3000 IFSC Open Account 12 HotForex No $5 0.0 85 1:1000 INC Open Account
TopAsiaFx.com helps you compare and choose your preferred Forex Broker. We suggest keeping the following checklist in mind when making your decision:
| Rank | Broker Name | Special Offer | Minimum Deposit | Spread | User Score | Maximum Leverage | Regulation | Start Trading |
| 1 | NordFX | 55% Deposit Bonus | $10 | 0.0 Pips | 96 | 1:1000 | VFSC | Open Account |
| 2 | SGT Markets | Refer a friend $10 | $500 | 0.0 | 95 | 1:400 | IFSC | Open Account |
| 3 | OctaFX | 50% Deposit Bonus | $100 | 0.4 | 94 | 1:500 | IBC | Open Account |
| 4 | Exness | No | $1 | 0.1 | 93 | 1:2000 | FCA,CySEC,IBC | Open Account |
| 5 | IC Markets | No | $200 | 0.0 | 92 | 1:500 | ASIC | Open Account |
| 6 | Tickmill | $30 Welcome Account | $100 | 0.0 | 91 | 1:500 | FSA,FCA | Open Account |
| 7 | Axiory | $50 Deposit Bonus | $200 | 0.0 | 90 | 1:400 | IFSC | Open Account |
| 8 | Justforex | 100% Deposit Bonus | $1 | 0.0 | 89 | 1:3000 | IFSC | Open Account |
| 9 | ThinkMarkets | No | $250 | 0.4 | 88 | 1:400 | ASIC,FCA | Open Account |
| 10 | XM | $30 Welcome Account | $5 | 0.0 | 87 | 1:888 | ASIC,FCA,IFSC | Open Account |
| 11 | FBS | $50 Welcome Account | $1 | 0.0 | 86 | 1:3000 | IFSC | Open Account |
| 12 | HotForex | No | $5 | 0.0 | 85 | 1:1000 | INC | Open Account |
