Trading mistakes are wrong decisions that may cost you money. On the other hand, financial trading is the most satisfactory solution to achieve a stable income and better living. Although all traders come to participate in the financial market to achieve that goal, a few succeed.
Successful traders or professionals survive through every market condition. They make profitable trades to increase their capital. Meanwhile, they keep their capital safe and utilize it properly. On the other hand, the losers of the financial markets lose their money as they are involved in some common mistakes.
Let’s discuss the top five common trading mistakes that every trader should know.
Top five trading mistakes you should avoid
This part lists the top five trading mistakes that every trader should avoid to be a successful trader. Otherwise, surviving in the most significant marketplace won’t be easy, and you will end up losing capital.
Mistake 1. Understand the market
The first mistake that most novice traders make is they start to trade without understanding the market. Understanding the market includes understanding the sentiment of the:
- Price movement
- Technical and fundamental analysis
- Strengths, weaknesses, growth, etc., key factors that affect asset price
It’s more like blind trading without understanding the market. You may make quick money from the market without understanding, but you cannot survive long by trading blindly. The FX market is a very volatile marketplace where several factors influence the prices of currency pairs.
The major participants of this marketplace are the central banks and major financial institutes, which have massive research and wealth. On the other hand, individual traders have limited research and little capital to trade. So one must have a minimum level of understanding to be a successful individual trader.
Mistake 2. Trade without backtesting
The second common mistake by most individual traders is that they start the process without backtesting — a general method to check the effectiveness of any strategy. It helps individual traders to improve and optimize their trading strategies.
Having a proper plan is one of the essential factors that would help survive in the financial market. There is no proof that any strategy will work forever in the financial market; it requires survival for a more extended period. Institutions of individuals all have strategies of their own to survive and make money from the financial market.
When you hold some asset between 1-30 days, then two to three years of backtesting is quite enough to understand the strategy’s effectiveness. Before applying any strategy to real trading, you must check the strategy by backtesting at least three to six months. It will increase your confidence and profitability. Otherwise, you can end up being a loser.
There are several tools available for backtesting that includes MT4 strategy tester and Tradingview Bar Reply.
Mistake 3. Not having a trading plan
Participants in the FX market are from worldwide, while the most prominent participants are major financial institutes. You are trading in the forex market means you are competing in big fish.
A trading plan involving:
- Trading goals
- Execution of trades
- Risk management
- Trading capitals
- Other essential factors
Most traders lose their money and can’t continue with this 24 hours market as they start to perform in the FX market without a proper trading plan. Trading plans help you reduce stress, risk management, avoid revenge trading, and so on, factors that will get you to the level of professionals.
It’s not that professionals don’t have losing trades, or every trade they make is profitable. They survive in the FX market for longer and make better trading positions than losing trades with proper trading plans. It would be best to prepare a suitable trading plan before starting trading; otherwise, you will end up being a loser in the long run.
Mistake 4. Lack of trade management techniques
Another essential fact for traders is to have proper trade management techniques. The FX market is a 24 hours market where instrument prices will not always move in the same direction as you predict every time.
Trade management involves techniques, steps, or trading decisions such as entry, exit, lot size, etc. It will help you to increase profitability and reduce loss at your trading. Unfortunately, novice traders often start trade without trade management ideas.
Trade management allows traders to measure and manage the negative impacts of trades. For example, they may carry a losing trade for so long, expecting the opposite direction from the price movement so soon and, as a result, may end up flashing their account. In most cases, the companies that engage in forex trading have trade management techniques that cover money management, risk management, etc.
Mistake 5. Not having a journal
The last of the top five mistakes by traders in our list is a journal that includes asset prices, lot size, trading duration, market conditions, and data that help individuals identify their trading mistakes.
Keeping a trading journal helps to improve individual traders’ performance as it is a kind of note of emotions. Most novice traders lose their capital through emotional trading and revenge trading. So the only solution is keeping a journal.
When you can identify your mistakes, you can correct your future trading decisions by not repeating the same mistakes. So you can be a successful forex trader when you keep a journal, improve your trading strategy by observing previous experience.
Finally, now you know the top five trading mistakes that every trader should avoid. Besides these mistakes, there are some other ones that you also should avoid, such as risking more than afford, carrying losing trades, choosing wrong brokers, news trading, etc.
Remember, it is a marketplace for smart individuals who can adopt the sentiment of the financial institutes and master the basic concepts of forex trading. You need to achieve such skills to be a professional in the financial market. Therefore, we suggest doing more research, gathering sufficient knowledge, and learning such skills before starting to trade.