Forex is one of the biggest markets in the world, and this image itself presents an infinite series of opportunities for investors. Here, the fate of all the currencies in the world is decided. The average traded assets are even trillions of dollars a day, so the impact of this market concerns the whole world.
While the Forex market shows temptation to anyone who is interested in the depths of currency exchange, it is good to know that it is also the most liquid market in the world. This means that most of the decisions are taken in volatile conditions, and the outcome might take by surprise even the most experienced investors.
However, if the future can’t be clearly delimited by the predictions based on statistics of the past investments, there are certain situations that any experienced Forex person can point them as mistakes. So, here are the 10 investment mistakes that are easy to fall for if you are new to these situations.
1. Lack Of Education
Even though Forex market seems like a straightforward business, its overall image is a misleading appearance. There are stories about many people taking their chances and becoming millionaires overnight, but their winning ticket was either sheer luck or highly worked for. Before adventuring in this volatile market, one needs a strong background of knowledge, and this cannot be stressed enough.
Many articles throughout the Internet make the currency exchange seem like an easy job and are even offering a short basic lesson for free. However, one must invest in a serious educational package to acquire the necessary steps of a professional financial trading.
2. Lack Of Plan
As it was said before, the Forex market is a volatile territory and without the guidelines of a strict Forex plan, the investors are likely to fall for any misleading tip. And one thing is for sure. The currency market is full of such treacherous messages.
Before starting a financial trading, one must set specific rules of investing and their future investment decisions will be taken based solely on these lines. The trader chooses the strategy on which the whole operation is founded while at the same time also paying attention to his own financial situation. He then draws his plan according to the management of his trading and his own finances.
3. Financial Discipline
This point will be short. One’s trading activities go the same as any other life activity. No matter how well built a plan is, it is bound to fail without discipline. The strict fitness schedule will be postponed until complete dismissal, the healthy diet will have big splurges until its own disappearance, and the Forex plan will be bypassed to experiment the rumors that the key to success has a different leverage ratio than yours and so on and so on.
The lesson here is that before learning how to run, one must master the basics of just walking. If the trader stays safe at the beginning of his Forex experience, he will slowly but steadily get to understand better how things work. There is a right time to play safe and the right moment to jump for a huge profit for anyone. However, these things can be taught only through gaining more experience in the investment world until one develops a sense of financial discipline.
4. A Start Without A Clear Objective
The reason a trading experience starts is also the reason that will end the process. Why is the trader working his way up through the Forex market? The reasons are plenty are vary from debts to college education expenses. No matter the reason, the trader should always redirect his winnings to the purpose set from the beginning and avoid the temptation to reinvest them for higher gains. This path can go on and on until an imminent failure will vanish the profits.
5. Lack Of A Stop Loss
As predictions of trading outcomes are out of the question, a stop loss can take their places as a safety net for possible huge losses. A stop loss is easily calculated based on the statistics shaped by the history of the activity of currency. The stop loss is set when the currency history is higher. Above this line, the risk of losing all increases its chances while beneath it the risk of lower profits is higher. Either way, the stop loss will always show the traders where the extremities of their trading are clearly delimited.
6. No Control Over The Risk-Reward Ratio
Even though the traders stand on the volatile ground the entire time of the investment process, one thing is for sure in the Forex market. Every professional trader takes the safety measures created by the risk-reward ratio. This ratio cannot predict the future, but traders avoid extreme risks based on it.
The basic idea is known even to beginners. The profit must be bigger than the losing trades. However, the risk-reward ratio shouldn’t be limited only to the overall image of the investments, but should be applied even solely to one trade. The ratio will tell you if the trade has chances of high profit or not.
The risk-reward ratio can go hand in hand with the stop loss marks. Working with these two indices at the same time will help the investors with a better managing system of the risk factors.
7. Patience And A Wider Time Frame
Everybody dreams of the overnight riches that Forex market holds. After all, the currency market has a 50:50 chances of either loose or win, and why not being on the winning side a long period of time? However, smart traders are looking deeper into the future than the overnight fantasy.
The reality is that as many investments a day you have, the bigger are the chances of failure. Having your troops scattered along the battlefield lets your core more exposed to failure. A trader with higher patience avoids the 15-minute time frames that can decide your financial security in a matter of seconds, and heads for the higher time frames. The profit is gained over time not overnight indeed, but the volatility is expressed slower and gives you time to decide your next move.
8. Breaking The 1% Capital Rule
Big profits are confused with big risks. However, big profits can be easily scored by holding a consistent position in the Forex market and risk only 1% of capital per trade or per day trading. Professional traders are even risking less than 1% of their capital.
The reason for this is that Forex market shouldn’t be seen as a reliable source of consistent earnings thus replacing a real job. The currency exchange shouldn’t be the main source of income for a person. Thus the risks can be set lower even though this means lower chances of high profits. With the 1% capital rule, the traders don’t give a day trading enough power to dramatically change the overall capital.
9. The Performance Is Overrated
Everybody should read the news on a daily basis. The international events have a great impact on the politics of the world and they even reflect on the Forex market. However, the way the news are interpreted should also be shaped correctly.
Most Forex beginners are searching for clear signs that a certain trade will bring high returns. And they search the signs through the news, which is good, but they for them in the wrong sections. They focus too much on trades that are already performing well. The bad thing about this is that any activity that reaches its peak has high chances to consume its success any moment and fall back below the high-performance line.
What the traders should do instead, is reading the signs for future success. Or better yet, stick to the trading plan that proved to be successful in the first place and doesn’t break the rules in favor for high performing assets.
10. Forex Equals Gambling
Everyone should stop thinking of a trading market as a poker game. Everyone should take Forex market for what it is, and that is a sheer business. Emotions, high risks, even a source of entertainment have nothing to do with the currency exchange, and they are bound to lead to high failures.
A successful business is achieved through hard work, market prospect, research, discipline, consistency and risk management. And that’s exactly what the Forex market is based on.
All in all, these are the 10 investment mistakes that can be avoided by any entrepreneur. These 10 features also represent the basic steps any trader should take to manage the risks and score big returns. Whenever the errors are wearing out a trading plan, you should take a step back and reinforce these 10 steps.
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