Common mistakes made by traders and how to avoid them
Common Mistakes made by traders – Avoid them to succeed. In the trading world, there are lots of people who want to make a living out of it. They devote themselves to studying and learning about market patterns, applying strategies that they have been taught from schools or from books, etc. However, even though they do all these things right, many people fail in their trading. Why is that so?
Well, to be honest, there are lots of reasons for this. However, I am not here to discuss them one by one because that will turn into a whole book rather than an article. Instead what I want to suggest to you today is something else. Here I am going to inform you about some of the most common mistakes that traders make and how you can avoid them. As a result, this will significantly increase your chances to be successful in the trading world!
10 Common Mistakes Made by Traders and How to Avoid Them In USA 2022
Here are 10 typical mistakes which many people make when they start with Forex Trading:
1) Believing only in what they see (or want to see)
It’s normal that when we start to get into Forex trading we come across lots of things that may help us to be successful, such as new strategies and systems. Nevertheless, what you should always remember is that NO SYSTEM will work on 100% all the time. Simply because a human being can not predict a market with 100% accuracy.
What you should do instead is to confirm your system before applying it in real life. How do confirm it? Well, the best way is to try using different time frames to see how well it works out in practice. If there are differences between the results that you obtained when you use a longer-term chart and when you use a shorter time frame, then you should go with the longer one. This way of confirming things will help you to avoid some of the greatest mistakes that traders make and consequently you will enjoy more success in your trading career.
Let’s take an example: Suppose John is a trader who follows trends and he uses exponential moving averages (EMAs) to confirm his trades. He has noticed that when he sets the period of these EMAs to 200 days their position coincides with the highs and lows of the market in 80% of cases. But when he uses a 10-day time frame instead, these EMA lines are perfectly aligned in only 50% of cases.
Well, if John decides to go with the 10 days EMA as he wants to be as precise as possible then this will lead him to lose money! Why? Because his system works perfectly with the 200 days EMA but it does not work well enough on a shorter time frame. Therefore, by using different time frames and confirming his strategy before starting with real trading, John is reducing his risk of making a mistake.
2) Relying only on indicators for decision making
Believing that the best way to trade is by using technical analysis completely, without having any previous knowledge about the market or financial instruments is wrong. Technical analysis can help you but it will not hand you all your desired profits! You must be well aware that even if you use 100 indicators that show the same thing, the market will not move as per your expectations. What can be done then?
Well, you have to combine technical analysis with a good understanding of the financial instruments and their behavior in different scenarios. This way you will significantly improve your chances to succeed!
3) Trusting what they hear from others
Many people, when they hear about other people’s success in the trading world think that this person has found a golden goose. However, even if you meet someone who is experiencing big profits in Forex Trading, you need to still do your own due diligence before following his/her advice. Why? Because being successful in trading can be done by using different strategies, some are presented below!
In the world of finances and the Foreign Exchange market, one thing in common: you should never trust anybody. People may try to give you advice which will lead you to financial disaster. Therefore what you should do instead is definitely not to follow what other people say but try to think more independently.
4) Only focusing on one market
Many people believe that once they have chosen a particular financial instrument to trade, they should stick with it 100%. Such a belief is wrong because the currencies of different countries behave differently in time and therefore you will not make profits by sticking with only one currency!
If you want to be successful in Forex Trading, then your main goal must be to analyze the market situation with different currencies and how they are influenced by different factors. You should not rely only on one currency but try to find out good opportunities far away from what you normally trade.
5) Only using fundamental analysis
Some traders have the tendency to only rely on fundamental analysis when it comes to making trading decisions. While this kind of approach works for them, other traders are not equipped with such knowledge. As a result, should you use only fundamental analysis when trading?
The answer is definitely no! There are lots of people who do not understand or care about the fundamentals of the market so they will always be at risk. What these people should do is use technical analysis as well and rely more on patterns than fundamentals.
6) Not having any plan B or C
Having a backup plan in case something goes wrong with your strategy for an extended period of time can save you a lot of money! However, you need to make sure that the backup plan will not be used too soon after having put your money on the line.
If you are serious about trading, then you should not trade with money that is needed for daily living. Instead, if something goes wrong with your model, consider withdrawing what is necessary and try again!
7) Not following the markets at all
Following the markets is not mandatory, neither for amateurs nor for professionals. However, if you are serious about trading , then you have to follow the currencies on a regular basis! This way you will know current market conditions which can help you decide whether or not this is the right time to trade.
8) Not sticking to your plan
People who are not successful in trading always complain that the market conditions are too bad. However, other traders find out ways to adapt themselves to new circumstances and make money even if other people would swear that the situation is not good!
If you take this kind of approach, you will fail! But there is a solution, and it is very simple: you have to stick with your trading plan no matter what! If the market conditions were bad in the past but are now better, you can change your strategy accordingly.
9) Focusing only on one strategy
There are some traders who believe that they have discovered a perfect strategy and they will use it for the rest of their lives. While this belief is definitely wrong, you need to know that it is also very dangerous!
You should never focus on one strategy because it does not work all the time! You must be able to quickly adapt yourself according to market conditions! If you only have one strategy, then you will have to wait for an opportunity that is not good enough.
10) Not taking action when conditions are perfect
Making a trade or not is up to you, but you need to know whether the market conditions are good enough! If they’re not, then you should wait until they become better! However, if they’re already perfect, then you should take advantage of this situation immediately!
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