When you’re already knee-deep into trading, and you’re beginning to love it, you feel this eagerness to ramp up your returns. We can’t blame you. Even long-time traders feel that way at one time or another. However, being overeager can lead you to disaster faster than you can imagine. This is because we tend to forget prudence if we’re too excited, or maybe we simply overlook some important stuff. Nonetheless, we’ll be giving you some forex trading mistakes that you might want to avoid.
This one’s quite common for traders. They stumble upon averaging down even if they don’t intend to. We’ll tell you the problems with averaging down.
The main error in this is that you’re holding a losing position. Not only that, you’re also losing some time. If you think about it, the time and money you’re wasting there could have been spent in something else better.
Additionally, for the lost capital, you need a larger return on the remaining capital to get that back. To illustrate, if you lost 50 percent of your capital, you would have to have a 100 percent return to bring it back to its original level. Losing a huge portion of funds on a single trade or on a single day can screw your capital growth for extended periods of time.
Traders are always keeping close tabs on important events in the market. What happens is that the traders know these events, but they don’t know the direction.
You may have the idea what the news is about, but you can’t possibly totally know in advance how the market will react. Most of the time, there exist additional figures or forward-looking indications given by news announcers. Such things can make movements illogical.
Waging over 1 percent of Capital
As a rule, the most rewarding assets are the ones that give you higher returns. However, you have to keep in mind that risking large amount of capital on single trades will eventually lead to a huge loss. Professional traders generally do not risk more than 1 percent of their capital on any single trade.
Let’s shift our attention to day trading for now. A daily risk maximum should also be set. This daily risk maximum can possibly be 1 percent of the capital, or maybe even less, or equivalent to the average daily profit over a month.
What this method does is that it makes sure that no single trade or single day of trading hurts your account substantially.
Setting Unrealistic Goals
Everybody’s probably guilty of this at least once in their whole trading journey. When you trade, you often impose your own expectations on the market. The truth is that the market does not always behave according to our expectations and desires. It’s independent of what you want. It can be choppy, volatile, or trending in different term cycles.
If you want to avoid this, you got to formulate a trading plan. Trade it. If you get good and steady results, don’t change it. Discipline yourself too.
Even old-timers can be guilty of those mistakes. All of us commit mistakes every once in a while. But that doesn’t mean that we will just let ourselves trip over and over again upon the same mistakes. We must consciously avoid these mistakes if we want to reach far in our investing journey.