Nobody is perfect and people tend to mistakes. However, there are certain fields wherein mistakes could be harmful. In the world of Forex, if you tend to make certain mistakes regularly then it is possible that you might lose everything you have earned. These are some 5 popular mistakes which trader tend to make while aiming towards big returns however tends to lose big. Given that, a trader could avoid these mistakes by knowledge and discipline.
- Averaging Down
It is a process wherein additional shares of a company are bought at lower prices that you originally purchased, this in turn bring down the average price of all shares. Most traders have ended up doing the process, leading to losing money and time. Also for the capital that is lost, larger chunks of investment is needed to get recover back the lost capital. While Averaging Down will inevitably leads to huge loss as a trader cannot stay in a liquid position for a long time. Moreover, this process is especially sensitive traders who are trading in for short time.
- Pre-Positioning for News
Traders often know about events that could move the market but direction is difficult to predict. Moreover, it is possible that a seasoned could analyze the news and predict the same, however additional news, figures which could change prove any predictions wrong. Therefore, making a move before final announcement could jeopardize your capital.
- Trading Right after News
Trading right after news aggressively could also lead to several loses if the same is being done without plan and in an untested manner. Traders should wait for the news to subside and a definitive trend after that. By doing it possible that there will fewer liquidity concerns and risks could be merged.
- Risk more than 1% of Capital
Excessive risk do not guarantee on returns. Moreover, it is possible that excessive risk could lead to huge loss eventually. A trader should not risk more than 1% or less of capital on a single trade. By following the stated approach trader is likely to make sure that a single trade does not hurt his/her trading account significantly.
- Unrealistic Expectations
Every trader needs to make him/her aware of this fact that market doesn’t care what you want and it is you who needs understand market. Therefore it is important that our trading expectations do not supersede the realities of trade. It is best that a trader should formulate a trading plan, in case the plan doesn’t works for you then change your plan. Also, different strategies or plans need to be adopted during different segments of the day and accordingly a separate strategy needs to be decided. Lastly, always remember don’t expect more than what market is providing.
Traders must at all costs try to avoid these mistakes by making up alternate approaches. While Averaging Down, traders should set out pre-planned exit strategy thereby not adding positions and leave losers quickly. Likewise, traders should not take any decisions based on news announcements; it should constantly monitor news until volatility has subsided. Furthermore, loss in any trade should be more than which recuperated on any other day. Expectations must be kept in check and it should never cross the threshold of market is giving. Ever remember playing monopoly with friends and family. Monopoly helps you too learn some basic lessons wherein trader buys and sells things. Likewise there are companies such as forexstars which allows you to practice all these skills using demo accounts. This will certainly help budding traders to understand these mistakes and how best they can avoid these by working on safe platform.
About the Author
Luke is seasoned Forex trader and freelance writer. Like any trader, Luke himself has experienced all shortcomings has always provided a fair picture of trading along with important suggestions and opinions. Luke has recently started Forex trading lessons.