How to Avoid Common Forex Trading Mistakes

No matter how long you have been trading in the foreign exchange (Forex) markets, you are bound to experience loopholes in the trading system, whether they are caused by unusual market developments or emotional extremes. Here are the main pitfalls of forex trading. If you start seeing any of the following errors in your trading, it is best to step back and refocus your attention and energies on the basic rules of trading.
Losers and Winners: The most common trading mistake is to hold on to losing positions for too long and take profits from winning trades too soon. The key to limit losses is to follow a risk aware trading plan that always contains a stop loss order and stick to it. Nobody is right all the time, so the sooner you accept small losses as part of your day trading, the sooner you can refocus on and discover winning trading strategies.
Trading without a plan: Resist the urge to trade automatically based on your instincts alone without a clearly defined risk management plan. If you have a strong point of view, go for it, but do the legal work up front so you have a working trading plan that defines where to enter and where to exit – both stop loss and take profit.
Trading without a stop loss: Trading without a stop loss is a recipe for disaster. It’s how small, controllable losses turn into devastating wipeouts. Using stop-loss orders is part of a well-designed trading plan that has specific expectations based on your research and analysis. The stop loss is where your trading strategy gets invalidated.
Moving Stop Loss Orders Moving a stop loss order to avoid being hit by a stop is almost the same as trading without a stop loss in the first place. Even worse, it exposes a lack of trading discipline and opens a slippery slope for big losses. Move the stop loss only in the direction of a winning trade, and never move the stop loss in the direction of a losing position.
Excessive trading: Excessive trading comes in two main forms: trading too often in the market and trading too many positions at once. When you trade a lot, you always have an open position and are constantly exposed to market risk. Trading several positions at once is like throwing darts at a board and hoping something gets stuck. It wears out your margin collateral, reducing your cushion against adverse market moves. To avoid these mistakes, focus on the opportunities where you think you have an advantage and apply a disciplined trading strategy to them.
Also, be careful about duplication of trade and overlapping positions – a long position for USD/CHF can be the same as a short position for EUR/USD or GBP/USD (all USD/EUR long positions are against Europe), while EUR/USD Short USD and Long EUR/JPY A window of positions would be the same as a long USD/JPY position.
Excessive Leverage: When you are trading with a large position size compared to your available margin, a small market movement against you may be enough to liquidate your position due to insufficient margin. To avoid this scenario, do not base your position size on the maximum position available to you. Instead, base it on trade-specific factors such as proximity to technical levels or your confidence in the trade setup/signal.
Not adapting to changing market conditions: Be flexible with your trading approach by first evaluating general market conditions in terms of trends or ranges. If a trend movement is underway, then using the range trading technique will not work, just as the trend-following approach in a range bound market will fail. Use technical analysis to highlight whether range or trend conditions prevail.
Being unfamiliar with news and data events:Even if you are a tech trader, you need to be aware of what is going on and what is going to happen in the underlying world. You might see a great AUD/USD trading setup, for example, but the Australian Trade Balance report in a few hours could blow it out completely. Therefore, make data/events calendar reading a part of your daily and weekly trading routine.

Trade Defensively:After a string of losses, you may find yourself focusing more on avoiding losses rather than spotting winning trades. In those times, it is best to step back from the market, look at what went wrong in your previous trades, and refocus your energies until you feel confident enough to start spotting opportunities again.
Having Unrealistic Expectations: Face it: You won’t retire based on any one business deal. The key is to hit the singles and stay in the game. Be realistic when setting the parameters of your trading plans by looking at recent market reactions and average trading ranges. Avoid sticking to perfection – If the market achieves 80 percent of the expected scenario, you can’t go wrong with taking some profit, at least.