Life Style & Financial Blog

Common Forex trading mistakes (part 1)

Common Forex trading mistakes (part 1)

The foreign exchange market (forex) is popular with traders for numerous reasons. It’s highly liquid – with more than $US5 trillion on average traded every day – is open around the clock Monday to Friday and is stable enough for brokers to offer leverage (meaning traders can borrow more against their capital) on trades.

However, it’s also a highly sophisticated market and traders who rush into it can end up making some very costly mistakes. Let’s look at five of the biggest ones made by new forex day traders:
1. Not having a trading plan
If people want to become a forex trader, they’ll need a trading plan. Acting without one will almost certainly lead to losses, so before they get started, they need to make sure to sit down and write up a list of rules to guide their trading and money management strategies.
2. Not enough research
The world of foreign exchange trading is built on interconnected dynamics. Economics, politics and market fundamentals converge in ways that create opportunities and risks for traders.

Many new traders are lured in by the potential gains on offer but fail to do the necessary research. This is potentially a way to lose money. Successful traders, however, tend to read widely and regularly to educate themselves on trading strategies and keep abreast of potential market-moving events.
3. Ignoring economic data and news events
News events like the release of economic data and central bank decisions can have a major impact on currency markets. The good news is that many of these events follow a regular schedule so it’s easy to know when they are coming. Of course, that does not mean it is easy to predict what the news will be, or how markets will react.

Trading on the back of a news event before a trend has been established does not fit all trading plans, but it may suit others. It’s a good idea to pay attention to news and events as these can play a crucial role in determining trends in currency pairs