New to Trading? Here Are 12 Mistakes You Should Avoid

We all learn through making mistakes, and for most things in life, this can often be a good way to build experience. However, when it comes to trading, making mistakes should be avoided as much as possible as even a simple mistake can prove to be extremely costly! After all, this is real money that you are putting on the line.

Which is why if you are just starting out, you should be aware of these 12 common trading mistakes and learn how to avoid them.

1. Not having a proper Trading Plan

While this might sound like something that most of us would avoid, it’s actually a very common mistake that beginners often make. Rather than spending some time to develop a sound effective trading strategy, many new traders simply make their trades based on superficial research, or worse, based on a gut feeling. This is a surefire way to lose your hard-earned money.

What you should be doing instead, is focusing on creating a proper trading plan. This involves formulating strict price targets for taking profits and cutting your losses short. This means that even if the market situation should suddenly change (and it often does), you'll always be prepared to react with the right trading plan in place.

2. Not using Stop Orders

Stop Orders is a tool that allows traders to take some profits off the table or prevent potential losses in the event that the position starts to move too drastically against them. Certain traders will avoid these orders in fear of being "stopped out", but beginners should consider using them as they may not be experienced enough to react if the position slides too much. Another reason to use this tool is that instead of staring at your screen throughout the entire length of the trade, stop orders allow traders to leave their desks without the fear that things will get too badly out of hand.

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3. Waiting too long before cutting losses

Just like the "Not using Stop Orders" habit mentioned above, this is a common mistake that many new traders are guilty of. In many cases, even when a trade starts heading in the wrong direction, new traders simply hang on and hope that the position will readjust and start trending upwards again. This means that they have ignored the most important rule of following the trading plan – failing to exit at the price they had established in the plan.

What they fail to understand is that with a determined stop order price, a move in price tends to signal a change in trend. Failing to react to this means that the situation could get out of control quickly, with losses piling on fast. To prevent this situation from escalating, you should always be ready to cut losses at a predetermined price. Any hesitation could cost you dearly.

4. Trading with bad risk/reward ratio

As a rule, the potential reward in every trade should always outweigh its potential risk. And when you stick to this essential rule, you can expect to be profitable even if just half of your trades are profitable.

Too often, beginners are lured by "sure thing" trades even though these are trades where the potential risk exceeds the reward. While there’s a possibility that these trades work out, this is due to blind luck more than anything, and you simply cannot expect this strategy to be successful in the longer term.

5. Taking unnecessarily large positions

Sometimes, beginner traders get greedy and place far too much money into a single trade. However, they get nervous once they see such large amounts moving on their screen due to market volatility. This can cause them to take impulsive actions and result in even more losses.

How can you avoid this mistake? It’s simple – always stay close to the comfortable position size. Although you should always try to elevate your trading abilities, you should learn early on that constant and regular profits are far more desirable than the occasional windfall which can also lead to drastic losses over time.

6. Focusing too much on the news

While it’s true that the latest global news such as economic reports, central bank commentary, and general political developments have a huge impact on the foreign exchange market, new traders should always keep in mind that their personal views don’t matter at all. The market's interpretation of such news is the only thing that will impact market dynamics.

For example, if you believe that strong economic data from the Eurozone should be bullish for EUR/USD, but the market's opinion is of the opposite view, then your trading decisions in this regard are going to end badly. Failure to respect the market's opinion will lead to a loss, so traders should always focus on the market itself rather than on their own interpretation.

7. Not paying attention to the news

On the other hand, while focusing too much on the news can be a bad thing, totally ignoring news is an even worse idea. That’s because the news is often market-moving and you need to be constantly updated about important global economic reports and the time of their release.

8. Adopting different trading strategies

It takes time for any trading strategy to show its potential. This means that if a trader refuses to stick to one strategy over a substantial period of time, he will never be able to find out whether it is effective or not.

Furthermore, this constant shifting between trading strategies will result in confusion and chaos, making it extremely challenging to manage your account. This is why once you have chosen a trading strategy, you should always take some time to evaluate if it is working well in current market conditions.

9. Trading for thrills

Make no mistake, the purpose of trading should always be to make money. If you are into trading for the excitement or thrills, then you better be prepared to lose some money.

It is not uncommon for new traders to get bored and start making frivolous trades which seldom ever end well. So, if you have any intention of making a profitable trade, then always stick to the trading plan and keep yourself from being distracted.

10. Not keeping a trading journal

A trading journal is a must-have for every trader who wants to learn about the markets and improve your trading skills. By filling up your trading journal with data, you'll be able to analyze which strategies work best in which scenarios.

If you think that keeping a trading journal seems like a pointless task, especially after a poorly performing day, we want to remind you that even the failures that you document will help you to learn and grow as a trader.

11. Doubling down on losing positions

Also known as averaging down, adding to losing positions is something that beginner traders often do. Instead of doing this, new traders should learn to cut their losses and leave complicated strategies that involve averaging down to more advanced traders.

The most important thing to remember is that adding to losing positions increases risk in a trade that is already headed in the wrong direction and could ultimately lead to even greater losses.

12. Letting your emotions get in the way

In the movies, traders are often portrayed as passionate and excitable characters who undergo a wild roller-coaster of emotions as their trades rise and fall. But in reality, this isn’t something you should follow! Try to keep calm while trading, and if you start to get emotional, you should step away until you have settled down enough to make clear-headed decisions.

Don’t get "mesmerized" by markets and start making trade after trade even when you are losing money. This is a state of mind that you should avoid, so just take a step away from your desk and take a breather until these strong emotions pass.

The best way to avoid these 12 mistakes is to put what you have learned into practice. So start your Forex-trading journey today with a regulated and trusted broker like Forex4you today!

Forex Trading involves significant risk to your invested capital. Please read and ensure you fully understand our Risk Disclosure.

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