Some forex trading pitfalls are easier to spot than avoid. If you can recognise them you will be able to avoid if you follow a disciplined trading plan.
Overleveraging Your Forex Account
Overleveraging your forex account is when you take out too large a position in relation to your available margin. Even a small market move will cause you position to be liquidated due to insufficient margin.
Just because forex brokers offer generous leverage ratios or 100:1 or even 200:1 does not mean you should use it all at once. Don’t base your trades on your potential margin leverage but on trade specific factors based on your fundamental and technical analysis.
Failing To Adapt Your Forex Trading
Failing to adapt your forex trading to changing market conditions is another common forex trading mistake.
Market conditions are always changing and you therefore must be flexible in your trading approach and understand how forex trades are affected. Evaluate overall market conditions on an ongoing basis. A range trading style won’t work if a trending move is under way and vice-versa.
Use technical analysis to determine which trading conditions prevail and be aware that you must adapt your technical indicators to match the market conditions as well.
Being Unaware Of Current Events
You must be aware of current events and how forex trading rates are affected. You need to keep abreast of the fundamentals of current events and when and if they are likely to influence the forex markets.
Spotting a great likely trend in your technical analysis may be undone by a major upcoming economic announcement in the country of either currency in a pair.
It’s best to keep a calender of likely events and announcements and review this on a daily and weekly basis. Keep a forward looking mindset and plan for those events that you do know about as they will be enough that will crop up that you don’t.
Defensively Trading Forex
Defensively trading forex is another common trading mistake. All traders experience losses and have losing streaks. After such a spell it is perhaps natural to trade defensively, trying to avoid further losses.
Take a step back and examine what went wrong with those trades and the refocus on finding winning opportunities.
And be realistic! You are not going to retire on the proceeds of a single forex trade. Be happy with a less than 100% trading plan and lock in profits when you can.
Conclusion
Avoiding these common forex trading pitfalls means being realistic and not over ambitious. Keep abreast of current events and trade according to your forex trading plan.
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