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The 4 Biggest Mistakes of Forex Traders

October 27, 2011 · 3 comments

in Forex Trading

Mistakes of forex traders

Whether it is the stock, commodity or Forex market, every trader needs to remember a few key rules before venturing into these sensitive markets. Forex traders on the other hand are even more susceptible to losses because of the globalized nature of their trade. Foreign currency responds to each and every breath of global economy and it is critical to hold steady in this scenario. Detailed below are a few mistakes to avoid:

Mistake 1: Emotional Judgements

Every successful businessman knows that the key to a thriving venture is timely decisions taken from the head instead of the heart and it would do a world of good to Forex traders to memorize this golden rule. In fact, letting emotions rule over your business or trade decisions is recognized to be the number one cause of failure. When spur-of-the moment decisions are taken, Forex traders open themselves up to huge risk that can go either way. Usually, it is the inability to concentrate on anything else but the rosy picture painted by the high risk – high reward relationship, but what many fail to realize is that this is alternatively known as gambling. At the end of the day, a successful Forex trader will necessarily have control over his irrational impulses.

Mistake 2: Over Trading

Hope is the four letter word that is not part of a Forex trader’s dictionary. The second biggest cause of concern for investors in any market is over trading and not banking the profits. A big gain, a sense of euphoria and the false sense of security in which a trader hopes to capitalize on his investment are the likely underlying causes of over-trading. What makes it even more risky is the fact that profits are not being banked; as they should at least thwice a month. Similarly, this addiction encompasses the losing party as well. Thoughts of retribution keep haunting the investor till he enters the market again. The solution to overcome this compulsion lies in disciplining yourself. Start by making a plan and stick to it. No business survives without a plan.

Mistake 3: Expecting to Go from Rags to Riches

This mistake stems from having unrealistic expectations from the market. Judging from the lack of patience many traders have, it seems most enter the market for that adrenaline rush. In this state, many risky decisions are taken, particularly pertaining to excessive trading and emotional decisions. The Forex or the stock or commodity market is not a place to make a quick buck. It requires consistent discipline and know-how of trading strategies. Most juvenile traders expect to quickly recover their money and start making a profit. However, the market turns twists on every call of global events that are impossible to predict and makes it necessary to enter into a trade with capacity to hold the position for a long term.

Mistake 4: Being Greedy

The proverb “don’t put all your eggs in one basket” applies to virtually every sphere in life. When a potentially attractive trade comes up, traders are tempted to pool in all their savings into the trade in the expectation of reaping hefty profits. While this strategy may pay off from time to time, it is generally suicidal. Diversification is the number one rule of success for investors and traders. The possibility that all your savings are locked in an unfavorable trade is a highly likely scenario, and even more so when considering the position is in some obscure currency.

Many people who have found success in other business avenues have failed in the Forex market. However, there are as many successful Forex traders who have managed to make it big. Start small, and with perseverance and a little self-control, there are high chances that the market can be beaten even if it is being hammered itself.

Written by Ethan Steadman

Ethan Steadman writes for TotallyMoney, an online resource for financial wellness.

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{ 2 comments… read them below or add one }

Alexander Collins December 5, 2011 at 5:32 pm

In the beginning of Forex trading career I used to overtrade but fortunately I understood my problems. And also your greed is an enemy so if it’s hard for you to handle with it, trade with automated Forex software. That’s the only way what will work out.
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Louie@LogUrTrades January 31, 2012 at 8:40 am

Overtrading and giving in to greed are two of the quickest way to blow a trading accounts. Once you learn how to master yourself and your trading you can easily overcome these mistakes to become successful.
Louie@LogUrTrades recently posted..Hello world!My Profile

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