First up, traders should trade with a plan. While jumping from trade to trade may be tempting, chasing after opportunities when you see it, this “flying blind” approach can be detrimental to your trading success. Having a simple yet well-defined trading plan is what differentiates professional traders from beginners.
In our opinion, a trading plan should compromise on a set of rules that outlines when to enter and exit trades, setting targets, and determining the amount of capital to risk. If you don’t have a trading plan, you’re taking a blind leap into the market and more often than not, end up losing more money.
A note to self: Trading without a plan is a risky move that’s not worth taking.
Repeat this after us: Traders who do not manage their risks, risk of losing everything.
What we mean by that is—investing without risk management rules is essentially just gambling. More often than not, a lot of traders out there overlook this aspect and get right into trading without considering their total account size. They merely based their decision on how much they could lose in a single trade and trade right away. People that trade this way are not looking for long-term profits, instead, they are looking to hit the “jackpot”.
Hence, it’s always helpful to educate yourself more on margin and leverage to determine how much capital you are willing to risk at one time. A basic guideline that traders typically follow is 1%-3%. On top of that, using stops and sticking to them (not moving them) not only allows you to execute trades when you’re not available but you are also forced to think through the end of your trade and place exit strategies before your trade and avoid any emotional trading.
Whether or not it’s intentional, many traders often find themselves “averaging down” when they’re face-to-face with a losing position. Averaging down is a practice of purchasing more units after the initial purchase, to lower the average entry price. Traders that choose this strategy have hopes that the market will eventually turn in their favor and eventually increase their profit when the market does so. But typically, their losses are piled on as the prices move against them longer than expected.
Compared to a long-term investor, this common mistake can be more detrimental to a day trader who uses high leverage in the forex market. So keep in mind, take a trade with proper position size and use a stop-loss on the trade to steer clear of the temptation of averaging down.
Unrealistic expectations can be a significant pitfall for traders. The age-old fantasy of becoming rich very quickly is no stranger at all, especially to traders that are just starting. When you start imposing your trading expectations on the market, you begin to think that it will act according to your desires. In actual fact, the market is unpredictable and doesn’t move to individual needs.
To stay motivated and disciplined, you need to set realistic goals and formulate a trading plan to achieve them. If it produces consistent and steady results, then stick to it because, with forex leverage, even a small gain can become large. When your capital grows over time, you can increase the position size for higher returns or try out a new strategy.
Whether you’re a seasoned trader or just starting out, it’s essential to be aware of these mistakes and take steps to avoid them. By learning from the experiences of others and being proactive in avoiding these mistakes, you can improve your trading strategy and increase your chances of achieving success in the market. Start trading smart today!
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