Losing Money In Forex Trading? Are You Repeating These Mistakes?
Why do major currency moves in trading cause big losses for the investor? Simply put, loss in trading is directly related to human psychology. There are some behavioral and thinking patterns that average traders (yes, even experts!) are guilty of repeating. Traders follow such thinking patterns almost subconsciously, which shows how deeply rooted these mistakes are in our psyche.
Not Making a Forex Trading Plan
You might think creating a plan for trading is so 2016. It’s not. This is something even pro traders support! Why? A comprehensive trading plan can bring positive effects to your trading game and strategy, unlike ever before. Yet many traders don’t take the time and effort to construct a trading plan that includes everything from steps to take, strategies to follow, when to enter or exit a trading market, what indicators are to be used and when. Perhaps many traders don’t understand how a trading plan should be constructed.
What is a trading plan? Quite simply: it’s a strict set of rules. Half are drawn from trading strategy while the other half from trader’s money management strategy. Traders can build upon their trading plan by adding points as they see fit. It’s recommended to tailor your trading plan according to your own requirements, like the example below:
- Specify exact market conditions (for trade entry)
- Specify risk and money management rules
- Specify exact market conditions for wrong trade exit (stop-loss)
- Specify exact market conditions for right trade exit (take-profit)
- Specify approximate time limit and duration to reach your target
Almost or All In On One Day Trade
Traders often have risk and money management strategies in place to prevent this impulsive behavior. There are times however when even expert traders are tempted to ignore their own money/risk management rules. Reasons why traders gamble on a larger trade than normal are:
- Thinking winning back all losses along with some profit (after losing trades in a low) will be possible, in one trade
- Over-confidence i.e. thinking you are doing well and taking a larger position than usual
- Being so sure of a particular trade that you are willing to risk everything
Sticking to a 1% risk rule per trade and 3% per day (or whatever percentage you are comfortable with) is the first step towards good money and risk management. Ensure these figures remain constant despite your emotions and feelings about any trade.
There is another mistake beginner traders are guilty of making. Have you heard of demo trading? It’s when traders operate an account that doesn’t use real money, for trading. Many traders completely forego this step or don’t spend enough time demo trading. Therefore, over-trading becomes an issue which doesn’t leave much room for positive and winning trades, i.e. money is lost.
Trading is only complex when proper guideline isn’t followed. Joining the right trading platform will make this easier as well. Look at features offered by AlpsSocial and think what you want from your forex trading platform!