To become a successful forex trader, you will need to have a strong trading strategy in place and follow it to the tee. Of course having a top quality Forex.com trading platform and using essential tools such as an economic calendar and online calculators are vital too, but without a good strategy anyone new to forex trading will be doomed to fail. Here are some of the major mistakes people make when creating a forex trading strategy which you must avoid.
Many people who are new to forex trading can be incredibly impatient and after losing a couple of trades will instantly begin changing their strategy. Losing is an important and unavoidable aspect of forex trading though, with even the most successful traders averaging more losses than wins. In order to truly test a strategy it needs to be given time, and this will include making a few losses. Rather than constantly chopping and changing, give it time and maintain some consistency first, before deciding to adapt your strategy.
Risking Over 1% of Capital
When your strategy is working and the going gets good, it can be incredibly tempting to begin upping your trades. However, in the world of forex trading a large risk does not equal a large reward. Those who put a lot of starting capital on single trades always end up losing. Therefore, it is important that not risking more than 1% of capital should be an important element of any forex trading strategy. Especially with leverage, this should safeguard against you losing it all before you even get a chance to test a strategy.
Trading too much is the main reason a lot of forex traders fail. With the ease of using a trading platform and the markets being open 24 hours a day for 5 days a week, it’s possible to be constantly making forex trades. This is dangerous, especially once a few losses are made as you can get into the mindset of making more and more trades to recoup losses. Therefore, factoring in a maximum number of trades you can make each day into your strategy is vital.
Involving the News
Political, economic and other news events have an impact upon the forex market but paying too much attention to them can distract you from a strategy. There’s so much trading news and analysis available online, but relying on it isn’t always as reliable as sticking to your initial plan. Other market variables can come into play as well, rendering the potential of certain news stories useless anyway.
Avoiding Stop Losses
If you don’t use a stop loss then the entirety of your account is at risk depending on how much leverage you use and the position size. A stop loss is the safety barrier in case a trade doesn’t work out as there is always some risk involved no matter how confident you are in a trade.
When crating a forex trading strategy, bear these common mistakes in mind and avoid repeating them in order to improve your chances of becoming successful.