12 Crucial Mistakes in Forex Trading

Widespread access to the internet has made it easy to trade and monitor financial markets, also making it easy for anyone to open an account and begin trading. Despite this, only a small percentage of Forex traders are truly successful. The overwhelming majority of traders tend to make the same mistakes repeatedly whilst trading, and these include the following:

Too Much Leverage

Leverage Ratios of up to 500:1 on the Forex market can bring about high risk. High leverage provides an opportunity to use more capital in the market, whilst keeping the risk to traders at a minimum. This could lead to massive gains; but it can also lead to significant losses as well. Using too much leverage could result in large losses even during small market moves, and this can affect the trader’s ability to ride the waves.


This is when you may deviate from the trading plan, and tend to take too many trading opportunities. This also increases the chances of making a mistake and causing subsequent losses.

Trading Without a Plan

Like any business plan, a trading plan helps with the success of forex trading. By following a plan strictly, it can help to manage risk, and help filter out unsuccessful entries involved with Forex trading.

Trading Against The Trend

Using lower timeframes and short term trading trends could very well be random, therefore it could lead to trading against the overall trend. Often, trying to pick tops or bottoms and expecting a reversal is regarded as trading against the trend! Always remember “Trend is your friend until the end when it bends!”, and this shall ensure you always trade with momentum.

Trading with Expert Advisors (EAs)

Many beginner traders, but not necessarily limited to them only, will search for software to predict future trends. Many companies earn money by selling this software, with the majority showing the back-tested results in their prospectus as a guide for future profits, but the reality is that the vast amount of them do not work in real-time, and if the software really worked, it would be unlikely that these companies would be selling their secrets.

Emotional Trading

If your emotions are at their highest peaks, you might get over-excited and trade with too much confidence. Remember, the market is always right, and emotional trading might lead to bad trading decisions. Emotions are one of the main reasons why traders start to lose great heaps of money in the Forex market. Dealing with a pre-determined trading plan should definitely help you control emotions, and maintain focus on your targets.

Impulsive Trading

When anticipating a trade setup, traders might jump into an impulse trade. Without waiting patiently for a setup to develop, and by letting the trade come to them, they jump into a market, literally chasing the trade. Taking trades like this one is a divergence from a predefined trading plan or a strategy. Remember, there is no profitable trading without discipline. Lack of control is usually the reason, while the lack of knowledge is just an unfortunate add-on to the lack of control. If you learn both discipline and patience, it should drastically improve your win to loss ratio.

Not Using a Stop Loss

It is usually a trade based on hope. A complete lack of a predetermined stop is literally letting your losses run indefinitely. In the case of small stop losses, a trader might suffer a “loss by a thousand cuts” wherein each stop loss is getting hit. The lower your stop, the more likely you are to get stopped out.

Trading Live Before the Demo

Each trader should trade on a Demo account before using a Live Trading account. The point of Demo trading is to make you more accustomed to trading, and to understand your trading platform better. If a trader starts to trade on a Live Trading account with little or no experience (without realising what it is like to trade live) it will likely increase the probability of a higher drawdown, and a more significant loss resulting in an eventual margin call.

Not Placing a Take Profit Target

Trading without a profit target and not protecting a trade with scaling out might quickly reverse a winning position into a loser. Using stop loss and profit targets is a must. Scaling-out is recommended for intraday trading.

Trading The News Based on Technicals

Trading during news announcements will definitely require a separate skill set, especially if a trader doesn’t understand the overall impact of the news, or the fundamental reasoning behind it. Furthermore, trading after a news announcement makes the news release less relevant since the market might have already priced in the report into the price, and traders might end-up with a significant loss as a result. A lack of knowledge and competence may prevent a trader from interpreting news correctly, and forecasting the next movement accurately.

Unrealistic Expectations

We don’t trade according to our desires. Our trading expectations should be based on real market conditions. The market just doesn’t care for your desires, and it will always act on its own. If you think you will still get a perfect result, you might be disappointed. Forget about making a million over the night.

The best way to avoid this is to have a trading plan and follow it religiously. By doing this, you might compound your returns and develop a very positive mindset, and this is what will help you to become a successful trader.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.