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Before engaging in any form of live trading, it is critical to have the proper foundational base to trade forex. Investing time in learning the do’s and don’ts of forex trading will benefit traders in the long run. All traders will make mistakes at some point, but minimising them and eliminating repeat offences must be practised and become expected behaviour. The primary goal of this article is to stick to a trading plan that includes proper risk management and a suitable review system. If you are new to forex, make sure to read our New to Forex guide to learn the fundamentals of forex trading.
TRADING BASED ON EMOTIONS
Emotional trading frequently leads to irrational and ineffective trading. To compensate for previous losses, traders frequently open additional positions after losing trades. These trades typically lack technical and fundamental educational support. Trading plans exist to avoid this type of trading, so it is critical that the plan is strictly adhered to.
TRADING SIZE IS INCONSISTENT
Every trading strategy relies on the size of the trade. Many traders trade in sizes that are inappropriate for their account size. The risk then rises, and account balances may be lost. The pressure of overexposing the account will be relieved if traders follow this general rule. The inherent risk of overexposure on a specific market is extremely dangerous.
TRADING ON NUMEROUS MARKETS
Trading on a few markets allows traders to gain the necessary experience to become proficient in these markets without having to delve too deeply into a few markets. Due to a lack of understanding, many novice forex traders attempt to trade on multiple markets without success. If necessary, this should be done on a test account. Noise trading (irrational trading) frequently leads traders to place trades on various markets without proper fundamental/technical justification. For example, the 2018 Bitcoin craze drew in a lot of noise traders at the wrong time. Unfortunately, many traders entered the market during the ‘FOMO or Euphoria’ stage, resulting in significant losses.
NOT REVIEWING TRADES
The use of a trading journal on a regular basis will allow traders to identify potential strategic flaws as well as successful aspects. This will improve the traders’ overall understanding of the market and future strategy. Reviewing trades not only highlights errors, but also beneficial aspects that must be reinforced on a regular basis.
SELECTING AN UNSUITABLE BROKER
There are numerous CFD brokers worldwide, making it difficult to select the best one. Before opening an account with a broker, financial stability and proper regulation are required. This information should be easily accessible through the broker’s website. Many brokers are regulated in countries with lax regulations in order to avoid regulations in stricter jurisdictions such as the United States (Commodity Exchange Act) and the United Kingdom (FCA).
The primary concern is safety; however, a comfortable platform and ease of execution are also important considerations when selecting a broker. Before trading with live funds, you should spend some time getting acquainted with the platform and costing.
Incorporate these characteristics to give yourself a competitive advantage in the market. When trading popular forex markets, traders frequently consider retail client sentiment.