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A quick look at the most common mistakes that forex traders fall into
The internet is full of lists. A quick search returns thousands of results, dealing in subjects from a to z. There’s something so satisfying about counting down to a number one.
As forex traders, we’re susceptible to a whole host of mistakes. And while the ten on this list aren’t the only ones, they are definitely the most common and destructive mistakes forex trader make. Let’s start off with the least dangerous item which comes in at number ten on our list.
10 | Not Having a Trading Journal.
Trading is a skill that takes a long time to progress in and one day hopefully perfect. The learning curve on the journey from novice to master is long and at times painful. So many actions will occur as you navigate the market that it’s essential to keep notes of what you did right and what you, unfortunately, did wrong.
Think of a trading journal as a daily diary. Over a long period of time, you will be able to go over your writing and see your growth as a trader. It’s key to ensuring you don’t get stuck in a loop where you make the same mistakes over and over and it’s incredibly helpful when you want to reflect on an achieved milestone.
So, if you don’t have one, go out and buy a notepad ASAP!
9 | Not Sticking to the Trading Plan
We’ve gone on and on about the importance of sticking to your trading plan (because it really is that important) and we’re gonna keep going on about it. Regardless of what your feelings or gut impulses tell you to do, if you’ve got a solid trading plan, stick to it.
Even if it brings you to a loss, the long term importance of disciplining yourself to follow your plan greatly outweighs the short term benefits one or two trades will bring you. Tweak your trading plan, grow it, nurture it, but stick to it! You’re essentially rudderless in the market when you act independently of it.
8 | Trading Strategy is too Complicated
OK, let’s modify the previous item slightly. Stick to your trading plan but make sure you can actually understand it. A trading plan isn’t much use to you if you can’t follow the directions and steps it lays out for you. Make sure the plan is accessible and easy to understand because you will need to go to it in a hurry when you find yourself in a jam. Make your trading strategy realistic. Make it easy to find your reaction for all situations and variables that the market may and will throw at you. Easy to read and easy to execute.
7 | Letting Position Ride too Long
This is a tricky one. How do you know whether you should cut out and take profits or let your trade ride just a bit longer? For starters, check your trading plan and think of your trading strategy. Does your method call for letting the position ride longer or should you bail out and take what you’ve earned sooner?
It’s always tempting to stick around longer when the smell of success is in the air (or market) but you need to stay disciplined and not fall for your own greed. Don’t make this common mistake, be tough and exit your position if you need to.
Remember, it’s ok to lose a little as long as you stick to your plan.
6 | Taking Profits too Early
Now to the flip side of number 7. There is such a thing as being overly cautious, especially when it goes against the rules you’ve set up for yourself in your trading plan. Maybe you have some anxiety about where you think the market might be going or maybe you just really want to guarantee a winner in your pocket. Whatever the case may be, fight the urge to take profits too early if it’s not the time you’ve set according to your plan.
Broken record time – it’s ok to lose a little as long as you stick to your plan.
5 | No Patience
This one can be considered as the umbrella emotion to the previous item on our list. A lack of patience can completely derail your trading if it’s not controlled and taken care of. A trader with a lack of patience will act hastily and emotionally. In order to succeed, you need to be tethered to reality and not controlled by your emotions. If something tempts you or you want to speed things up, you’ll land in trouble. Nothing good will come immediately because this is a long journey to market mastery. Sit back, be patient, and make your move when the time is appropriate.
4 | Overtrading
This is another mistakes forex traders make that’s pretty simple in theory to overcome but incredibly damaging if done in practice. Your trading plan outlines what you can and can’t do, what you should and shouldn’t do. If you trade according to the guidelines, you should never find yourself overtrading. But if you stray from the path of guidance and begin to make more moves than you and or the market can support, you’ll find yourself in very deep water very quickly.
3 | Giving in to Emotions
We outlined all the emotions associated with trading in this previous article. Be sure to check it out for a deeper understanding of why each of these emotions is potentially damaging to your trading portfolio. Approach trading like a robot. Get rid of the bad emotions and the good ones. Happiness can be just as troublesome for a trader as sadness. Emotions will blind you to the realities of the market and send you signals that run counter to your trading plan and trading strategy.
2 | Risking Too Much on One Trade
This isn’t a scene from a movie where you stand at a Vegas craps table with everyone cheering your name, encouraging you to put it all down before you ride into the sunset with unimaginable gains. No, this is your professional career where you’re trying to earn a living, not some one-time casino thrill. Check with what your trading plan allows you to risk and set your cap there. Don’t move an inch higher. Treat your risk management strategy like a holy document that you must adhere to under any and every scenario.
Now, drumroll, please….
1 | The #1 on our list of common mistakes forex traders make: No Trading Plan
If you’ve been paying attention, you should have seen this one coming. I mean really, most other items on this list can be avoided by having this and sticking to it. There’s not much to say if you jump into trading without a plan, other than get ready to not succeed. Sure, you might win one, two trades, but sustained prolonged, career level success? Not going to happen without a sound and clear trading plan. Go back to the drawing board and write one up now if you have to but make sure you have a trading plan (and that you stick to it!)
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