A lot of people rushes into forex without noticing the mistakes that could be avoided. Here are some of the mistakes that traders do and how to avoid them when trading forex. Read carefully so that in your next trade you will avoid making the mistakes.
1. No trading plan
Experienced traders know their exact entry and exit points, amount of capital to be invested in the trade, and the maximum loss they are willing to take. Novice traders may be unlikely to have a trading strategy in place before they start trading. Even if they have a plan prepared, they are more inclined to abandon it, if things are not going their way.
2. Pre-Positioning for News
FX Calendar is a very good tool to collect information on what is going on on the market. Though keep in mind, that even if you are fairly confident in what news will move on the market, you can really predict how the market will respond to the expected announcement. Quite often, there are complementary figures or indications provided that can make moves irrationally.
3. Trading Right after News
Wait for volatility of the announced news to become less intense and really develop a definitive trend. By following this advice you will manage your risks more effectively having more stable direction and no liquidity concerns.
4. Averaging Down
There are several problems connected with averaging down. The main one is that losing position which is being held is a voluntary money and time sacrifice. Remember that a larger return is required on remaining capital to get back your lost one. Averaging down might work occasionally, but mostly it is leading to inevitable losses, as a trend can maintain itself longer than you will stay liquid. Trade opportunities must be realized when they occur, and poor trades must be exited quickly.
5.Risking More Than 1% of Capital
Excessive risk does not equal excessive returns. Almost all traders who risk large amounts of capital on single trades will eventually lose in the long run. A common rule is that a trader should risk (in terms of the difference between entry and stop price) no more than 1% of capital on any single trade. Professional traders will often risk far less than 1% of capital.