Trading
forex is a challenging and rewarding endeavor, but unfortunately for most
retail traders, the challenges far outweigh the rewards, simply because there
are some common forex trading mistakes which makes successful forex trading, a
challenging proposition, infact nearly impossible.
According
to forex expert Carmelo
Cerrelli, when
getting started in forex trading, there are some common mistakes to be avoided.
Here is a list of common forex trading mistakes:
- Running losers and cutting
winners
The most common trading mistake is holding on to losing positions for too
long and taking profit on winning trades too soon. The key to limiting losses
is to follow a risk-aware trading plan that always has a stop-loss order and to
stick to it. Always remember, the sooner you are able to accept small losses as
part of everyday trading, the sooner you will be able to refocus on spotting
and trading winning strategies.
- Trading without a plan
Resist the urge to trade spontaneously based on your instincts alone
without a clearly defined risk-management plan.
- Overtrading
Overtrading comes in two main forms: trading too often in the market and
trading too many positions at once. When you trade too often, you always have a
position open and are constantly exposed to market risk. When you trade too
many positions at once, it eats up your available margin collateral, reducing
your cushion against adverse market movements. To avoid these mistakes, focus
on opportunities where you think you have an edge and apply a disciplined trade
strategy to them.
- Overleveraging
When you trade too large a position size relative to your available
margin, even a small market move against you can be enough to cause your
position to be liquidated for insufficient margin. To avoid this scenario,
don’t base your position size on your maximum available position. Instead, base
it on trade-specific factors such as proximity to technical levels or your
confidence in the trade setup/signal.
- Not adapting to changing
market conditions
Stay flexible with your trading approach by first evaluating overall
market conditions in terms of trends or ranges. Use technical analysis to
highlight whether range or trending conditions prevail.
- Having unrealistic
expectations
Be realistic when setting the parameters of your trading plans by looking
at recent market reactions and average trading ranges.
- Not applying risk reward and
money management correctly
Risk management is critical to achieving success in the markets. It involves
controlling your risk per trade to a level that is tolerable for you.
Conclusion
According
to forex expert Carmelo
Cerrelli, no
matter how long you have been trading on forex markets, you are bound to experience
lapses in trading discipline, whether they are brought on by unusual market
developments or emotional extremes. So if you start to see any of the above
errors in your own trading, it’s probably a good idea to square up, step back
from the market, and refocus your concentration and energies on the basic
trading rules.
