You Have To Avoid These Dangerous Mistakes In Forex Trading

You Have To Avoid These 7 Dangerous Mistakes In Forex Trading

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When meeting with many traders, I received a lot of their shares about the trading mistakes they made (making them at a loss). And we discussed how to fix these mistakes. We can see that traders are making these mistakes over and over again. They discourage us from finding a way to succeed in the foreign exchange market.

Today, I will list those transaction mistakes, and discuss them with you. Thank you for your interest in this small blog. Leave your comments below to let me know which mistakes you make the most.

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People say: “Don’t risk more than 5% of your balance”

5%, 10% are just numbers which are suitable for each person.

Fixing a certain percentage of risk level you should accept is what a lot of websites and courses tell you. In my opinion, it is a false approach in practice. It can make you vicious about inefficient trading. My explanation is as follows:

The main reason that traders often set a certain percentage for the accepted risk for an order is because it is a good idea. That’s right. They believe this will help them to increase their balance with certainty by minimizing the risk of lost orders. You’ve probably heard of this too much.

I recommend not using a percentage but using a specific amount of money. The risk level might be 100$, 200$, 500$, etc., for a losing order. And always remember your cut-loss amount will correspond to the number of lots for opening an order using levels.

Risks always come with profits. You cannot expect to make a fairly decent profit with a very low accepted risk level. Do you know what I mean?

I recommend not using a percentage but using a specific amount of money
I recommend not using a percentage but using a specific amount of money

Becoming a stupidly greedy trader

Greed is always one of the bad mistakes for us, especially in trading. It is easy to become greedy when money and material obscure your eyes.

Most traders are quite similar to the image of gamblers in casinos. They pursue a dream of becoming wealthy after one night. It is addictive. It is ingrained in you. It entices you. And when you want to get out, then there is no money left.

Always live with reality. Do not chase the “big prey” in every transaction, because it rarely appears. If you have a risk/reward ratio of 1:2 or 1:3 (the amount of a losing order = 1/2 – 1/3 of a winning order), that’s great. That ratio is a professional standard. You do not need to be more greedy unless you objectively acknowledge that the opportunity is still plenty. If so, stay still and enjoy it.

Greed is always one of the bad trading mistakes
Greed is always one of the bad trading mistakes

It’s hard to know when to exit a position. Exiting sooner or later may also cause regret. But none of us can buy at troughs and sell at peaks, can’t we? What we need here is the reasonability. I mean, if you have a risk/reward ratio of 1/2 or 1/3 and you feel that the market doesn’t seem to go any further, you should close your orders, collect the money, and keep on “preying”.

We are not afraid of losing opportunities (the market will always give us opportunities). What we are afraid of is losing money.

Day trading and scalping

In my opinion, you should stay away from this type of trading. When I first joined the Forex market, I had also been scalping wildly. Its result was impressive when trying on a demo account. I increased my balance from $3,000 to $11,000 within 6 days.

Back then, I thought it was the fastest way to make a lot of money. As a result, you might have guessed, I burned out many accounts. Worse, it made me frustrated and stressed because I had to sit in front of the computer all day to place orders. I had to stay up late and get up early because I didn’t want to miss any of the market movements.

Day trading and scalping
Day trading and scalping

These are very dangerous trading mistakes. It makes you burn out your account extremely fast but you have not learned much through such times. New traders often make this mistake. And they either switch to observing and trading with larger time frames (H4, D1, W1) as well as placing orders more selectively (3-4 orders per month for example), or they give up after losing too much money.

Combining multiple trading strategies and systems

When attending off-line meetings of many trading clubs, I find that people have lots of trading strategies. There are many robots with different coding systems. A lot of strategies are advertised. And a lot of robots are sold with interesting promises. In reality, however, it’s likely that you are wasting your time and money on inefficient things.

Find a strategy that you believe in, pay to learn it, try it seriously for a long time. Do not be discouraged too early with unexpected results. Do not combine many strategies together. Each strategy has its own trading philosophy. The combination does not make it better.

Combining multiple trading strategies and systems
Combining multiple trading strategies and systems

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Smug and arrogant

These two mistakes in trading are as dangerous as the greedy guy above. Many traders suffer from them. One of my brothers said: “Lucky for me because I lost money at the beginning. It’s better than earning a lot in the first place.”

Indeed, if you make much money when entering this market, you will most likely become smug and arrogant. It will be difficult for you to either follow the advice of others or to accept your mistakes.

Smug and arrogant are two serious mistakes in trading
Smug and arrogant are two serious mistakes in trading

What we need here is humility. Legendary traders such as Livermore, Buffett, etc., all recommend that you keep your trading plan and orders as private. I like Livermore very much. He always keeps his mouth shut about his speculations. If he wins, then he was right. If he loses, it means he did it wrong. Why complain, why explain?

Once you share this with others, you risk putting your emotions (coming from others and yourself) into your work. If you’re making money from this market, live modestly and don’t brag to anyone. Your path of success will still be very long ahead.

There is a pretty good quote though I don’t remember whose it is, as follows: “When you start bragging how talented and great you are, the market seems to have some magic that pulls you to the ground in deep dark sorrow.”

Observing and trading “strange” currency pairs

My teacher once shared that he had just lost a decent sum of money for the GBP-NZD pair which he had never traded before. A trader with over 10 years of experience sometimes makes such mistakes.

I recommend trading the major and familiar currency pairs. They are the best. There is no reason for you to monitor 20 to 30+ different currency pairs. Because the major currency pairs plus the gold, silver, and oil markets will definitely give you a lot of opportunities each month. So keep an eye on them.

A lot of traders think that keeping track of as many currency pairs as possible will give us a lot of opportunities to get rich. But once you do not understand a currency pair or do not have a long enough time to closely observe and form a “feeling” for them, you are at a very high risk of trading that “strange” currency pair.

Focus on the major currency pairs
Focus on the major currency pairs

Thinking too much

This is the last one in this article. Many traders prefer to trade continuously. They look at the electronic board all day long, paying attention to everything as long as it relates to their trading. They will have the feeling of “controlling” the market or “reading through” the market.

Yes, if you love this job that much, I would like to have no idea. What I really mean is, they are not very good choices (at least for me). Always remember that you cannot control the market.

What you need to do is control yourself and try to keep your mind in a “neutral” state. Mr. Market never cares about what you think, how you feel, or how valuable the money you put into the market is to you.

Thinking too much makes it harder for you to make trading decisions. Get yourself a simple (but effective) plan with specific bullet points. When the elements that make up a profitable opportunity appear, place an order. Then, immediately turn off the computer and wait until the next morning to turn on and see the price movements. Keep things simple and delicate.

In conclusion

I would like to end my writing here. Please share your thoughts, experiences, and comments below.

We all make many mistakes on the way to building up knowledge and bravery. Even later, with years of experience, no one dares to say in advance that they could avoid them all. Hopefully through this article, you will look back and “insightfully” learn something to aim for a better trading result.

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