It’s of utmost importance for Forex traders to understand some of the most common misconceptions and pitfalls that make it difficult for traders to get a foothold on the market. Here are 5 common mistakes that could help you trade judiciously:
Finding a legitimate broker calls for serious research. The qualities you might want to look for first are the deposit and withdrawal policies, customer service and security policies of the company. The prefered deposit amount by most brokers is $250 with a minimum investment of $25 to $250 per trade. Payout can range anywhere in between 60 to 200 percent. At Finarix, we offer investment amounts as low as $3, offering both long term and short term expiry time.
High risks are associated with choosing the wrong broker:
Access to the financial market is easy and very often result in traders underestimating the importance of knowledge. Even though it’s true that no formal education is required to successfully trade with Forex, trial and errors can be fatal. Knowledge about Forex trading can be acquired through various educational articles, e-books that are specifically crafted for beginners.
Understanding how assets and the financial market behave requires an understanding of market analysis. Market analysis includes fundamental analysisFundamental analysis is evaluating risks by trying to gauge a financial asset’s value, by examining related economic, financial and other qualitative and quantitative factors andtechnical analysisTechnical analysis is an analysis methodology for forecasting the direction of prices through the study of chart patterns and trends, past market data, primarily price and volume..By definition fundamental analysis deals with global news events and their impact on assets while technical analysis makes use of charts and chart patterns to identify sound trading opportunities.
The pitfalls of neglecting the knowledge part of trading:
Calm people make better trades and the more emotional you are, the most likely you are going to commit mistakes while trading. While trading Forex you have to be rational and completely disconnected from your emotions. This is probably not possible for most, but you set rules in order to help you manage your emotions.
For example,Out-of-the-moneyThis term refers to the point when a purchased option has no gain and the trader makes a loss on their investment.trades can make us angry and frustrated. The natural reaction is to double down on the next trade in an attempt to try and make up for the losses immediately. More often than not, this results in more losses. Conversely, a winning roll can make traders overconfident and they lose their objectivity. In short, no matter what streak you are in, letting your emotions sway your trading decisions is never a good idea. Every trade should be a well thought out decision.
The dangers of trading emotionally are multifold:
Forex trading need a good trading plan and the ability to stick to the plan avoiding impulsive and spontaneous trades. A trading plan simply guides your tradings in the right direction. It covers everything from defining your preferred markets to determining time frames, positions size and exit points.
This outlines how you trade, when you trade and where you trade, incorporating risk and capital management strategies along the way. A trading plan is important because jumping right into the financial market without knowing where it’s going or understanding the signs it provides is a big mistake. For successful trading, you need to find a trading strategy that works for you and then stick to it.
Trading without a plan has many risks.
The financial market can definitely not be control, but you can control how you response to it by properly managing your capital and risk levels. Experienced or not, some trades always end Out-of-the-money. You have to be prepared for losses and always remain calm and focused.
For example, if you follow the 5/15 rule of trading where you invest up to 5% of your balance on any single trade and up to 15% of your account in a whole trading session, it limits your exposure. Even if you lose a trade or two, you don’t wipe out your capital.
Trading without a good risk and capital management plan has dangers like:
In summary, Forex provide lucrative trading opportunities but you need to avoid the common pitfalls. The most important thing is to devote enough time educating yourself about the industry and the financial markets before trading substantial amounts of money. This is what will set you apart from other traders.
Feeling confident enough to give it a try?