The potential to reap large profits entices several traders to forex trading. While numerous people are already used to trade, the recent pandemic seems to have skyrocketed the numbers.
As many lost their income during Covid-19, they tried their luck with trading. In fact, forex trading increased around 300% during the pandemic. Most of this increase was accounted for by first-time traders.
Many new traders join the market owing to the lucrative profits. But most of them don’t take long to exit forex trading after experiencing losses. While the market can give you high returns, there are also risks associated.
You can easily cut these risks by avoiding the most common pitfalls of forex trading. If you are a new trader or someone experiencing heavy losses, here are some common pitfalls and how you can avoid them.
You May Read: Difference Between Demat & Trading Account
Lack of Research
You cannot follow your gut feelings or a tip to open or close a position. This practice might deliver results at times. But research needs to back all the decisions you make in forex trading, even if you have a gut feeling.
When it comes to trading based on tips, ensure that the tip comes from someone you trust, or you might get caught in a scam. Signal-seller is a common forex trading scam where fraudsters promise expert recommendations for daily, weekly, or monthly fees. If you fall into such traps, you might have to seek assistance from someone who can help you recover money lost in forex scams.
You May Read: How to Make a Career in Product Designing
Trading Without a Strategy
Forex trading is easily accessible and operates 24/7. Hence, traders fall into the trap of monitoring the market and placing trades around the clock, leading to health problems. This is where a strategy comes into play. You need to restrict yourself to time limits. Another thing that usually first-time traders do not plan is the amount of money they want to invest.
You need to build a strategy with specific timelines and budgets. This will help you prevent putting in and risking more value than you can afford. Also, keep a journal to jot down what works for you. You can then improve your strategy based on the pointers for better results.
You May Read: Best Cyber Security Courses
Never Using a Practice Account
Almost all forex broker platforms offer a practice account. These accounts enable you to place hypothetical trades, helping to prepare your strategy. They also come in handy to understand the technicalities of using the platform.
A single error, such as pressing the wrong button in live trade, can lead to significant losses. Hence, it is essential to use the practice account. However, due to the urge to earn profits quickly, many traders often overlook practice accounts.
You can avoid this pitfall by registering only with a paper trading account. Paper trading is a form of simulated trading where you only place hypothetical trades. Try paper trading for a month and then register with a forex trading broker.
You May Read: Benefits of Forex Trading
Letting Emotions Take You for a Ride
Remember we talked about creating precise strategies. One of the biggest reasons behind deviating from plans is emotions. Overexcitement after a good day or despair after a bad one can lead to deviations from sticking to the plan.
You will be overflooded with emotions while trading, and it is completely natural, but don’t let them take control. Emotional trading impairs your vision and leads to bad decisions.
No matter what, try to stick to the strategy you have built. You always have the option to change your plan. If you feel that tweaking will improve the strategy, do it, but don’t make arbitrary decisions.
You May Read: Automated Forex Trading System
Trading for a Revenge
No one feels good after a loss. This is where the desire to recover costs arises. In such a scenario, traders feel like getting into the market straight after a loss. If you trade after a loss, your emotions will heavily influence your decisions.
Hence, you might feel like going for trades with higher risks but can give better profits. This can lead to further losses.
You need to remember that no one can make positive trades every time. If you are facing multiple losses, the best thing is to take a break from trading and analyze the mistakes you made. This will help you come back stronger and earn profits without taking higher risks.
Forex trading is the biggest financial market. You can register with the biggest forex trading platforms and start making money. But that does not mean you should simply jump into the market. Consider the pitfalls mentioned in this post and avoid them to ensure good returns and fewer losses.