The forex or foreign exchange market’s low barrier of entry makes it one of the world’s most accessible trading markets for anyone interested. The only thing that you would need is a computer, an internet connection, and a few hundred dollars to start trading for beginners. However, this easy entry is not a promise of profit. In this highly volatile trading market, certain practices can result in a complete loss of capital. It is more of a downside as most people tend to make a run for trading without learning the basics first.
Before you step into the world of forex, consider these common mistakes to avoid, as they are the main reasons most new forex traders fail.
Risking more capital than you can afford
The practice of taking an excessive risk does not often bring in high returns. Almost traders who risk large amounts of capital tend to eventually lose it in the long run. One of the key parts of a clean risk management strategy is to establish the amount of capital that you can risk on each trade. It is recommended by experts that traders should not risk more than 1% of their capital on any single trade.
Trying to anticipate the news
Though most traders will know the possible news events that will move the market, the direction is often unpredictable. Anticipating the direction the pair will move, and taking a position before the news comes out might look like an easy way to make a windfall profit. But, because of the volatility of the market, the price will move in both directions, sharply and quickly, before picking a sustained direction, thus increasing the chances of a loss. For all these reasons, taking a position before a news announcement can reduce the chances of profit in forex.
Though everyone has some expectations about the market, we cannot expect it to act according to our desires. It simply doesn’t care about individual desires and traders must accept that the market can be volatile and risky. There is no fixed method for profiting from the forex trades. The best way to avoid unrealistic expectations is to formulate a trading plan.
Trading without a plan
A trading plan is a written document that outlines the type of strategies that you will be adopting while opening and closing positions. It defines how, what markets and what time frame you will use for making trades. The plan should also include the risk management rules and how you will enter and exit trades for profit and loss trades.
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