5 Forex Trading Mistakes to Avoid

5 Forex Trading Mistakes to Avoid


1. Over Leveraging

By far the most common and most deadly of the trading sins. The massive amount of leverage offered by forex brokers can range from 100:1 or 200:1. to as high as 2,000:1 or 3,000:1. At 3,000:1 leverage you only need around 333$ to take a 1 Million dollars position.

Don’t get me wrong, leverage is a right not an obligation. Just because your broker offers you 3,000:1 leverage doesn’t mean that you have to take a 1 Million dollar position with your 500$ account.

But it does mean being responsible. Keep your risk per trade low, never risk more then 1 or 2% of your account.

2. Not having a Trading Strategy

Most traders especially beginner traders trade without a trading strategy. They trade blind, often changing up their methods on a daily basis depending on what works in the moment.

Always have a formulated trading plan. A good forex trading plan should have the following elements:

– An Entry Point

A trading strategy should always have a well defined entry point. Write down the rules for entering a position and post them on your monitor where you can see them. If you trading strategy is not fully automatic just write down the main rules and stick to them!

– An Exit Point

Where do you get out of a bad trade? Do you cross your fingers and hope for the best? Hope is not a strategy, always have a predefined exit point and write it down right next to your entry point rules.

– Trading Size

Do you know what will be your position size before you get the entry signal? Or do you vary your size based on how you feel once you get the alert to enter? The size of your trades should be directly related to your trading strategy. In general, a good rule of thumb for new traders is the 1-2% limit I talked about earlier

3. Not Following Your Trading Strategy

This trap is as common as number 2. Once you have formulated your forex trading strategy than stick to it! After you enter a trade don’t forget to put in the Stoploss and Take profit orders.

What’s the point of going through the trouble of creating a trading strategy and then abandoning it once you start trading?

4. Using a Trading Method Not Suitable for You

Your trading method should be suitable for your lifestyle. If you work and don’t have the time to watch 1 minute charts don’t try to create a scalping strategy. Pick a daily or 4 hour strategy instead.

5. Not keeping a Trading Journal

Is your trading strategy working? Does the entry need to be tweaked or does the take profit level need changing? The only way to know if any changes are needed is to keep a trading journal.

Write down your wins and losses, as well as your reasons for entering and exiting a trade. Review your journal on a regular basis, at least once a week. It will do wonders for your trading.