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MISTAKE ONE:

LACK OF PROPER TRADING

EDUCATION/TRAINING

A well-trained Forex Trader can

be compared to a hunter who
spends ample time in the
animal's habitat or nest
learning all its behavior and
moves. Such a hunter is able to
set proper traps and ultimately
succeed in catching the animal.

Trading is the same, proper

training is very important for
one to trade profitably and
consistently. There are multiple
sources of free Forex trading education o nline that newbies and intermediate
traders can access. Most reputable Forex brokers will also offer training freely
for their traders.

However, traders sho uld not fall into the trap of information over -load, this is
where one spends too much time learning to trade from vario us sources without
actually practicing what they have learned. Just like a good hunter, spending
sufficient time watching the market, usually regarded as chart tim e, is
compulsory for success.

Correction;
Before risking capital in trading the Forex m arket, acquire sufficient trading
education as well as clock enough chart time to learn price movements and
patterns.

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 MISTAKE TWO:

LACK OF A TRADING PLAN

A popular saying on planning reads;

lack of planning is planning to fail.
Forex trading is not an exception to
it. Most experienced traders as well
as trading education sources out
there will always insist that a trader
keeps a trading plan. While this has
become a cliché for success in Forex
trading and trading financial markets
in general, it is true.

A trading plan should be t he first tool in a trader's arsenal. Depending on the

trader's sty le of trading, it sho uld document the strategy, have goals/targets as
well as entry and exit levels for individual trades. The trading plan can also be
used as a journal where the trader doc uments each and every trade and
comments on it after exit.

The trading plan sho uld be reviewed at the end of each trading day or week to
reveal areas that are lacking in the traders’ strategies and methods as well as
the areas of strength. With this, the t rader is always in a state of self-
improvement.

Correction;
A trading plan and a trading journal are an important part of a Forex
Trader’s arsenal and is instrumental in helping avoid other mistakes as well
as ensure constant improvement.

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 MISTAKE THREE:

OVER-TRADING

Let us take the analogy of a

crocodile; which waits patiently for
its prey. A crocodile can lie waiting
for the right moment to strike for
days on end. This is the same way a
Forex trader should approach the
market. He/she should wait for the
best moment, when all the
conditions have aligned, before
placing a trade.

Most newbie traders o ften feel the

urge to trade all the time. This often leads to emotional and revenge trading
where a trader will resort to trying to recover lost funds by trading more hence
risking more capital. Trades should only be placed when and if all the conditions
the is looking for are in order and an o pportunity to make profit has revealed
itself clearly.

Over-trading can also be compared to a run and gun strategy in battle, while
there will be successful kills, there will also be multiple casualties. On the other
hand, well timed trading can be compared to a sniper, who waits for his/ her
target to be clearly on his/her cross hairs before pulling the trigger.

Correction;
Patience is key while trading the Forex Market, and hence should be
exercised at all times. Like most say, when the trader should always ‘sit on
his/her hands’ until the right trading opportunity arises.

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 MISTAKE FOUR:

RELIANCE ON MECHANICAL SYSTEMS

AND INDICATORS

Most newbie traders usually look for quick

and effortless profits. On top of that, there
are numerous fancy sy stems and magic bullet
indicators all over the internet on sale, all
promising quick profits. Most of these
systems only require the trader or user to
plug into the trading platform and the profits
will be made on auto pilot.

Most traders will fall into these traps while starting out and lose most if not all
of their trading funds before realizing that no system or ind icator can replace
proper preparation and chart time.

While there are good automated systems and indicators out there, none will
make profits co nsistently in the long term due to the ever-changing nature of
the Forex market. If used, they should only be part of the trader's arsenal and
compliment his/her trading.

Correction;
No one single system will replace the learning process required to achieve
success in the Forex m arket, instead, traders should use the syste ms and
indicators to complem ent their trading. Traders should not fall into the trap
of purchasing numerous systems in the quest of getting a holy grail to make
fortunes from the market.

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 MISTAKE FIVE:

MISUSE OF LEVERAGE

Leverage is a double-edged
sword, it can increa se the returns
netted from profitable positions
as well as escalate the amount of
losses for unprofitable positions.
Professional Forex traders know
that the first goal of trading is
protecting the trading capital as
well as lo ng term surv ival in the
market. For this reaso n, they do
not over-leverage their trades
since they plan for the worst-
case scenario first.

On the other hand, newbie traders have the 'get rich quick' mentality which
leads them to over -leveraging their trades. With the volatile nature o f the Forex
market, an over -leveraged positio n can easily get out of hand and lead to huge
losses, and in worse cases, loss of the whole trading capital.

Most brokers will generously avail high leverage ratios to their clients, however,
traders should not over-leverage their trades as there is a chance of the trade
going against them. A trader should clearly know the amount of margin required
for the positions taken and always maintain enough margin in case of a draw
down.

Correction;
Leverage in the Forex market can be used to make high profits, o n the other
hand, it can be the do wnfall for the trader. Some traders are more
aggressive while others are more conservative in regards to risk, every
trader should use the amount of leverage he/she is comfortable with.

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 MISTAKE SIX:

LETTING LOSSES RUN

The best traders not o nly know how

to pick winning trades, but they are
also good losers. What this means is
that they understand that losses are
inevitable and hence know how to
handle them properly. The phrase;
"cut your losses quickly and let your
profits run" has been repeated over
and over simply because it is one of
the best ways to protect the trading
capital.

As part of the trading plan, the trader sho uld clearly define their exit points.
This can be in terms of loss amount in currency/pips or the point of invalidation
of their initial trade analysis. However, most newbie traders as well as
experienced ones do not like taking losses. This leads to them letting their
losing trades run eroding the available margin which leads to margin calls.

The best way to avoid this mistake is placing a Stoploss order at the moment of
entry into a trading position. This ensures that the trade is closed at the set
stoploss and losses do not mount. The trader should refrain from widening the
stoploss order, the stoploss order should o nly be moved to protect profits as
the trade goes into trader's directio n which is well known as t he use of a
trailing stop.

Correction;
The importance of a Stoploss order when trading should never be under -
estimated. So as not to forget to place the Stoploss order, traders should
place it at the moment of entry into a trade position.

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 MISTAKE SEVEN:

FOLLOWING THE HERD

The online Forex trading community has no

shortage of the so called 'trading gurus and
experts'. With the gro wing number of Forex
resource sites and trading analysts, it is very
easy to get lost in the noise an d start heeding to
their advice. Even worse, one does not have to
be specially qualified or experienced to post
his/her own analysis. Given that, you will find all
sorts of analysis and opinion in regards to various trading assets in the Forex
market.

With all this information, traders abandon their trading plan and trade based o n
others' analysis. When losses occur, the same traders will resort to picking a
different analyst or so urce of informatio n to trade based on with the
assumption that it is better that the previous one. This will more often than not
lead to a futile cycle o f collecting information and trying to profit from it.

Correction;
Just like no trading sy stem or indicator will replace the right tradi ng
education; no self-pro claimed gurus should replace a traders’ own intuition
and knowledge. While the trader can follow a few industry leaders, they
should not blindly heed to their analysis. Instead they should focus on their
own trading plan and only u se the information gathered as an add or
precaution .

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 MISTAKE EIGHT:

TRADING TOO MANY PAIRS

Most of the best traders who ever

existed, trading currencies or
other financial derivatives,
specialized in one asset class or a
particular instrument.
Unfortunately, most traders make
the mistake of analy zing almost
every Forex instrument provided
by their broker in the trading
platform. With numerous currency
pairs, commodities as well as CFDs
made available by most brokers
for traders to choose from, most newbie traders find themselves trading a
different instrument every day.

Most Forex pairs and inst ruments behave differently depending on time and
trading sessio n, for this reason the trader should take time to learn the
movement of one or just a few of these instruments. Like any other business,
specialization leads to increased expertise in that part icular area of interest.
The same is true for the Forex market, specializing in a particular instrument
will lead to mastery of the same.

Like the analogy of the hunter in the first mistake, spending time learning the
behavior of o ne or just a few pairs wi ll enhance the traders understanding of
those pairs. This will lead to the trader noticing repetitive patterns in the
movement of the instruments and hence be in a better position to anticipate
price action.

Correction;
In any other business or industry, specialization is key to fully
understanding the attributes of something. Forex traders should specialize
in trading o nly one or a few currency pairs or instruments available in their
trading pl atform.

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 MISTAKE NINE:

ADDING TO LOSING POSITIONS

Just like any other market; prices

in the Forex market will make
moves both up and down
depending on the current
sentiment. Based on that,
traders will make their eighth
mistake which is adding to a
losing position with the hope
that the market will eventually
turn back and head to their
direction. This may happen at
times and the trader will end up
with several profitable positions leading to bigger profits.

However, Forex market prices exhibit a distribution curve known as fat tails;
which means they tend to trend outside the normal price deviatio n (extended
price trends). This may lead to a trader adding to a losing position on a strong
trend which may take days or months to rev ert back to his/her initial entry
leading to a margin call and loss of the trading capital.

Correction;
Adding to a losing position is a defensive strategy that will lead to more
losses. Instead, traders should accept their losses and look for more tr ading
opportunities. Trading in the Forex market is available for 24 hours a day,
hence there is no shortage of trading opportunities and the trader should
not hold o n to the losing ones. A better approach is adding or scaling into
winning positions.

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 MISTAKE TEN:

IGNORING IMPORTANT ECONOMIC

RELEASES

Most Forex traders will either use

technical analysis while others will use
fundamental analysis to pick their
trade directions. Technical analysis is
very popular and especially appealing
to new traders. Due to this reason,
most will find themselves ignor ing
important fundamental events that
may influence the short term,
intermediate as well as the long-term
direction of the market.

High impact economic releases such as the NFP (No n -Farm Payroll) report lead
to increased volatility and huge spikes in price movements. Traders should
factor in such high im pact news so as to manage their o pen trades
appropriately. It is also advisable to abstain from trading during such times due
to the high risk such volatility poses.

There are several sources of free Forex e co nomic calendars online that will
provide the trader with current and approaching economic events that will
influence the Forex market. More so, most Forex brokers will update their
traders regularly with the Forex economic calendar.

Correction;
Economic releases that are likely to influence price movement and volatility
in the Forex market should be well factored in a trader’s trading plan.
Before placing any trade, all traders should take a glance at the economic
calendar to see if there is an event that could affect their trades.

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 SUMMARY:

THE TOP 10 MISTAKES FOREX

TRADERS MAKE:

Lack of Proper Trading Education

Lack of a Trading Plan
Over-Trading
Reliance on Mechanical Systems and Indicators
Misuse of Leverage
Letting Losses Run
Following the Herd
Trading Too Many Pairs
Adding to Losing Positions
Ignoring Important Economic Releases

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