Trading in Foreign Exchange Market (also known as FOREX or FX) is not new, it’s been year’s people participating in FOREX TRADING to make a fortune. Even though FX is considered high risk activity, there is a rapid increase in FX Trading Volume. Over the past few years trading volume was around $5.1 trillion per day but in April 2019 it reached maximum to $6.6 trillion per day, which makes FX the most liquid market in comparison to other Financial Markets. Despite the rapid growth and increase of interest in FOREX TRADING, we still experience that a huge number of FX Traders face losses. You need to keep in mind that Losses are part of Trading Business but one should learn to reduce the risk of losses. Trading wisely can only reduce huge losses to a great extent and to trade wisely one need to understand the Common Forex Trading Mistakes which can cause losses.
Understanding the Mistakes
Trading Involves human emotions and most of the time losses are caused by negligence and emotional mistakes of traders. Common Forex trading mistakes could be divided into two separate Types.
1- Behavioural
2- Technical
Among both types behavioural mistakes are the most deadly for traders because they represent human emotions, nature, psychological tendencies. This also includes the perceptions and reactions of the traders in the different situations. We can say that it is one’s behaviour (action and reaction) which makes it difficult for him to trade with profit or to avoid huge losses.
Most Common Behavioral Mistakes:
1- Greed
In Trading Markets there could be many perceptions about the term “GREED” but as a Behavioral Mistakes it starts right from the beginning of one’s tradig journey. When someone start FOREX Trading, considering it an easy and quick way to earn money always suffer losses because such mental approach leads them to trade aggressively without understanding the basic structure of market, its movement and its behavior.
The concept of easy and quick money has been promoted by the people (could be brokers and Ib’s) who does not have any soft corner for the investors but priority is their personal interests like increase their client deposits or commission earnings.
2- Fear
If we talk about “FEAR” in trading markets than remember that main fear is fear of loss. The element of fear always takes over when there is no discipline in one’s trading. Fear could be divided further into two parts.
1st where a trader fear to enter in the market and misses some wonderful opportunities to make profit which leads one to get eager to be a part of market movement but that eagerness effect the quality of entry and the fear of loss becomes a reality.
2nd part is the worst part as in that situation trader do enter in a trade timely but gets scared even with a small running loss, this small negative amount cause a panic which result in an immediate liquidation of the trade in negative. Repetition of this results in loss of whole account balance.
Fear Factor damage badly to those who are not disciplined in their trading while on the other hand disciplined traders has nothing to fear from the market movement.
3- EGO
Most of the small (retail) traders act like the own the market. They forget that they are just a tiny (not even small) part of a huge market. This is the “EGO” which does not let them understand this fact and force them to stick with their bad decisions and fight with the market while sitting in the wrong direction. “EGO” makes them blind, in fact one cannot sustain a bad entry otherwise the result will be in shape of huge losses. Retail traders cannot move the market but can only fight for survival. Wise traders keep their ego aside and always ready to move with the market and do not let their ego hurt their capital.
4- Addiction
Yes this is true, FOREX Trading can easily become “ADDICTION” and when you are addicted to trade, you’ll only end up losing not only the capital you invested but you’ll keep adding up to your capital and keep losing that too.
Now the question is what is addiction in FOREX Trading?
1- If you are sitting in front of your trading platform continuously (trading or not trading doesn’t matter) this means you are at the beginning stage of this addiction.
2- If you cannot keep yourself away from the market for one day without trading it means you are now addicted.
3- If you always want to be a part of market move that means you are at the worst phase of your trading addiction.
We discussed the most basic behavioral mistakes which many traders repeat in their daily trading. In routine trading one cannot judge these mistakes easily because emotions take over the senses. But if one can control his emotions and act sensibly than the huge losses can be avoided.
Here one thing you need to keep in mind that Losses are part of Trading Business. But one should learn to reduce the risk of losses. Trading wisely can only reduce losses to a great extent.
