We all know that there is no shortage of human errors in the forex market, particularly if you consider the common trading mistakes that are famous on different trading platforms. Beginner traders are mostly the ones who fall into these mistakes in forex trading. Fortunately, certain tricks can help new traders from falling into the common pitfalls of trading.
Although most errors may not be critical in certain situations, traders must understand that falling for these errors can start snowballing until it reaches complete chaos. Being a successful forex trader doesn’t necessarily mean that you have to profit a lot in one or two trades; instead, it can bring consistent earnings through careful strategizing. Following different practices can help make sure that traders are consistently profiting.
Always start with a plan
One of the most common mistakes of forex trading or trading, in general, is not having a plan. A trading plan is a crucial part of any successful trader’s strategy. If a trader is not following any plan, there are many rooms of inconsistencies that can pile up over time. Forex trading can quickly become an emotional task. The only way to protect a trader is by having a trading plan. Traders can also look at financial forecasting to make sure that they are on the right track.
According to research published in the University of Glasgow, “Forecasting the market behavior has always been in the center of scientific research by academics, financial and government institutions, investors, market speculators, and practitioners. In order to quantify the results of financial forecasts in practical market terms, the above-mentioned parties combine their forecasting methods with sets of rules regarding trade orders and capital management. These rules are called trading strategies”
The last place traders would like to find themselves in is an unchartered territory where they cannot make sure of what decisions to make. The increasing number of variables and unfamiliar environments are bound for traders to make mistakes easily. This is where trading strategies come into play. There are different trading strategies traders can use when trading in the forex market. One strategy they can easily apply is trend study.
From a report published by Regal Core Markets, a forex brokerage company, “a trend study refers to analyzing the different trends occurring within a given market and capitalizing on the said trends. Currency pairs may either go on a Bullish (upward) or a Bearish (downward) trend. Traders, then, monitor the specific currency pair, relying on the predicted direction that the said pair is taking and making profits thereof.”
With a trend study, traders can easily monitor and forecast any movement forex pairs are bound to make. This is because currencies are affected by global events and news, making it easier for traders to predict any upcoming movements in any pairs.
Don’t be overconfident
Many traders can easily be attracted to the high leverages or margins that some forex platforms offer. This leveraging feature allows a trader to magnify their capital as they make trades, but what they always forget to account for is high risk. One thing that traders should remember is that forex trading is not a gamble. This is the worst strategy that any trader can apply. Successful traders use reasonable leverages that don’t cut into their pockets deep enough to hurt.
According to the Geneva Association’s research, “Theoretical models predict that overconfident investors will trade more than rational investors. This means that if an investor is confident in leverages presented to them, they turn out to increase their trading volume. This can sometimes lead to unexpected risks and losses.”
One way to avoid being overconfident in leverages offered by different trading platforms is by applying the right strategy, such as range study. Range study allows traders to understand how the prices of the currencies fluctuate.
From the same report by Regal Core Markets, “During a range study, traders closely monitor the Upper and Lower Limit of a specific currency, capitalizing on the said fluctuations. The said currency is purchased during its Lower Limit and sold during its Upper Limit. The point, however, is to analyze the parameters of the said fluctuations. The timeframe of the low points (low price), as well as the high points (high cost) of a particular currency, are significant factors for effective trade.”
Forex trading is a vast market that includes a lot of variables and forces at play. Understandably, learning how to trade in the forex market is not an easy process. Like other trading industries, understanding the trends and having the right strategy is essential if traders want to increase their profitability.
Image credit: Pixabay
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