Every trader is bound to make some mistakes while trading on the forex market. Knowledge of the most common forex money management mistakes ensures that you learn from the mistakes made by others. According to most successful traders, it is not trading methodologies that work wonders for them, rather it is the rules they adhere to for long term success.
Forex Money Management: Basic Mistakes
Following are the biggest mistakes traders make in forex trading and how to prevent them:
- Most traders start trading with no game-plan. A trader with no plan is in no position to know when to enter or exit the market.
- Improper money management is another pitfall. You need not have a fortune to trade on the forex market. Money management essentially boils down to staying clear of risky trades that involve too much trading capital at any given point of time.
- Control your expectations and do not expect too much too soon. Most traders make the mistake of quitting their regular job and jumping onto the trading bandwagon in the hope of getting rich in months. You must avoid this. It takes hard work and perseverance to achieve success in foreign exchange trading. It is not a "get rich quick" scheme.
- Most traders fail to use protective stops. Using protective buy stops or sell stops in a trade gives the trader a clear indication of the risk of the trade. Identifying when to apply such a stop is recommended for better money management in forex. That said, protective stop tools are not perfect and can not always guarantee you a risk-free trade
- Patience and discipline are two factors most traders starting out lack. Do not trade just for the sake of trading or just because you have not traded for a while. Wait for the right opportunity to come, and then make your move.
- Trading against the trend is another mistake most traders make. Buying low and selling high is not a route to trading success. Top pickers and bottom-pickers usually are trading against the trend, which is a major mistake.
- Trading on too many markets at one time is a big mistake. If you incur losses in most of the markets and if they pile up, you must cut back on trading even if it indicates more trading to recover your lost assets.