Top Five Forex Trader MistakesMany traders work hard to become knowledgeable and skilled in fundamental analysis and charting. These are important skills. Yet many traders fall victim to ordinary trading mistakes that lead to financial loss.
Below are the five most common mistakes made by traders. Read them carefully -- and avoid making them yourself. 1. Failure to Use Stop Loss OrderA stop loss order is a pre-set order that will automatically close a trade if the currency pair reaches a certain price. This is a risk management tool that prevents large losses. Why don't traders use stop loss orders? First, the trader is overly eager to enter the trade and/or too confident in the success of the trade. Second, some traders don't trust stop orders. Perhaps the trader has been stopped out of a trade only to watch it retrace and then close in the positive. This type of whipsaw action by a currency can be discouraging, but it can also be managed. Failing to use stop loss orders leaves the trade (and the trader) open to quick and large losses.2. Failure to Use Limit OrdersA limit order is a pre-set order that automatically closes the trade if the currency pair reaches a certain level. Unlike the stop loss order, the limit order secures the profit. Why would a trader avoid using an order that will lock in profits? Many traders are concerned that the limit order will cut the profits of a successful trade by forcing the trader to take profits too early. Hence, the trader will miss out on even higher profits. But trades can reverse and a profitable trade can quickly turn into a losing trade. Remember, you never lose money taking a profit.3. Using Too Much MarginThe large amount of margin and leverage that is available in Forex causes some traders to over-extend themselves in a single trade. More leverage means the possibility of higher losses so the trader is vulnerable to incurring losses quickly and exponentially. Another result is that the trader will not have enough margin available for other trades. 4. Trading Too Many LotsA lot is the basic trading unit in Forex. The number of lots that a person can trade at one time is limited only by the money and margin available in the account. The problem is that many novice traders become overly excited and start trading with ten or more lots. Even two lots could be considered excessive for beginning traders. Trading a single lot is a prudent way to begin trading. If your trading system advocates for you to start trading with more than two lots, find another system.5. Failure to Place a Hedge TradeA hedge trade is a separate trade that moves in the opposite direction of the primary trade. Why should a trader use a hedge trade? To make a profit regardless of how a currency pair moves. Yes, using a hedge trade will reduce the overall profit. However, it will also increase your chances of making a profit on the currency pair.
| 
| 