Chances are good that if you are considering a venture into currency trading on the foreign exchange (FOREX) you will encounter Metatrader 4 trading software. This is the most dominant software, or trading platform, in the world. It is so prevalent; even though Metatrader 5 was released to rave reviews some time ago, many traders have zero interest in changing over. Most forex brokers continue to offer the previous version rather than risk alienating current or potential clients.
The platform has powers, features and capabilities that few, if any, traders can claim complete mastery of Metatrader 4. As you embark on your journey to becoming a competent currency trader, either as a means of a supplemental income or as a full-time career, be aware of and do your best to avoid some of the mistakes that can crop up during the heat of the battle that is encountered during a typical trading session. Take heart in the fact that even traders with considerable experience make these same mistakes on occasion.
Mistake 1: Placing a market order to sell when it was your intention to buy or a buy order when it was your intention to sell.
Any experienced trader, even a successful one, will admit to having done this on more than one occasion. The most common reason is some sort of a distraction. Phones ringing, people sticking their heads into your trading area whilst you are trying to focus and trying to track too many markets simultaneously are just a few of the other reasons for this mistake. On a positive note, those same experienced traders who will acknowledge having made this seemingly inconceivable blunder will sometimes admit that the outcome of the mistake was no better or worse than if they had carried out their original intention. If you find yourself in this situation, take a deep breath, sit back and change your perspective. Since the price of a currency pair can only rise, decline or remain constant, it basically requires time for what is generally perceived to be an unforgivable mistake to resolve itself in your favor. That is trading reality, pure and simple.
Mistake 2: Trading the wrong currency pair.
It is too easy to think you are placing an order to trade the EUR/USD when you have in fact placed an order to trade the USD/JPY. These two pairs are generally negatively correlated, meaning that if the price of one is rising, the price of the other will be falling. You will realize the mistake when you see the char of the EUR/USD moving in your predicted direction, but when you look at your profit and loss window, you will be losing money. Once the realization of what you have done dawns, it is tempting to panic, but just as with Mistake Number 1, you simply need to step back and reassess your position.
Mistake 3: Not keeping sufficient margin in reserve to enable protecting a trade.
Any trader knows that he will be wrong on an entry decision on many occasions. He also knows that one very effective tactic in this situation is to add additional positions until such time as the market does reverse and begin to move in his direction. This is frequently done through the use of limit orders that are not executed until the market reaches the intended price. When this is done deliberately, it is called scaling in. When this is done spontaneously, it is called adding to a loser. Essentially, this is splitting hairs. It doesn’t matter how you have arrived at this point of adding additional positions to your initial trade. All that is required to mitigate this mistake is the forethought to keep your positions small enough so that you have sufficient trading margin left to employ this tactic.
Mistake 4: Forgetting to cancel unneeded limit orders.
When using the above tactic of scaling in, on many occasions the market will reverse and make your original positions profitable before your limit orders are executed. The trading platform can make it possible for the charts on your screen to move to where you can no longer see your unfilled limit orders. The too frequent outcome of this mistake is that you shut down your trading machine thinking you are done, only to have one or more of your limit orders filled while you are otherwise occupied. You come back to find the orders filled and losing money. You could come back to find those orders making money for you, but something about forex trading dictates that this will seldom be the case.
Mistake 5: Over reliance on the various built-in trading tools of the platform.
Technical traders can often place far too much faith in their trading platform. Indicators and oscillators are good tools, but they are not infallible. If they were, you would never have a losing trade, but neither would anyone else. If this were ever to become the case, the forex market would cease to exist because it is the losses of some traders that finance the wins of other traders. Here is a healthy way to view the trading tools that come in the trading platform: They will be infallible until you base a trade on them. Highly experienced traders know that these tools are most effective when prices are undergoing significant upward or downward movement and that they are better for determining a trade exit than they are at predicting future price movement and providing a good trade entry.
These five common mistakes represent only a few of many. You can learn to minimize these and any other you might discover through the use of forex demo accounts. Even though you will be learning with simulated funds, you will still hate making mistakes. Use simulated trading accounts to experience this feeling; learn the steps that are most effective at minimizing these blunders for you. Forex trading is one of the few endeavors that permit this type of practice. Plan on using this to your advantage both when you are starting out and even when you have many currency transactions under your belt.