One of the most popular financial markets to invest in globally is forex. Open 24 hours a day, five days a week, the size of the FX market in 2022 was estimated to be around $750bn and is expected to rise to an estimated $1140bn by 2028. Easy to access through online brokers, investing in forex is something that businesses, full-time traders and people looking to invest some of their spare cash like to do.
Anyone who is thinking of trading on this market, though, should take the time to know how it works in advance. A good place to start is finding out about the most common FX trading blunders to avoid and enhance future trading performance as a result.
But which are the most widely seen errors for FX traders to avoid?
Not learning how to read charts properly
For those who are complete novices when it comes to this market, forex charts show how a specific currency pair is performing and how it has performed previously across multiple time frames. Learning how to read charts is crucial, therefore, because it gives FX traders up-to-date information to work from when deciding where to put their money. Getting up to speed with the most common chart indicators (such as RSI, moving averages and Bollinger Bands) is also worthwhile, as these can help traders predict where the price might head next.
All of this makes finding easy-to-read and reliable forex charts a must for any FX investor. These charts are some of the best around and bring traders the latest price action on forex currency pairs to mull over each day.
Not having a plan to trade from
Another of the most common mistakes FX traders make is not having a plan to trade from. This can be easy to do (especially for newer investors) when the sheer excitement of being active in this market makes them want to start trading right away.
However, it is essential to take some time first and draw up a written plan to start investing from. This will help traders to trade in a logical manner and avoid them making rash decisions that could prove costly.
Common things to include in forex trading plans are:
- Which currency pairs/timeframes to focus on
- What type of analysis to use (i.e., technical chart analysis, fundamental analysis based on the latest financial news, or a mixture of both?)
- Trading style (i.e., are you a day trader or will you use the scalping technique?)
- How much of one’s overall trading balance to use per trade
- Entry/exit strategy for trades
Failure to use stop-loss orders
One very useful tool every trader should use when entering the forex market is a stop-loss order. Despite this, a common mistake is ignoring these orders or not being aware of them at all.
But what are stop losses? In simple terms, they allow investors to set a pre-defined price point at which their trade closes automatically. Traders can set both a point at which a losing trade is shut down, or at which point a winning trade will be closed. The valuable thing about this feature is the ability it gives people to manage their risk.
By using stop-loss orders on each trade, FX investors can avoid the market suddenly turning against them before they have time to shut a trade down manually and incurring major losses. It also gives traders an in-built safety net on each order and makes it easier to invest in forex with total peace of mind.
Not practicing on demo accounts
As noted above, the excitement many people feel when starting to trade can see them jump into the market before they are ready. This is not ideal when one’s own money is at stake. One common mistake many traders make with this in mind is not practicing enough on demo accounts initially.
This is something to avoid, as demo accounts at online FX brokers are the perfect way to begin any forex investing journey. They not only give traders a more relaxed way to get a feel for the market but also enable them to get used to investing without risking real money. All traders should spend time practicing on a demo account to begin with and only move onto the real thing when they can make money successfully on it.
Top forex trading mistakes to swerve
Trading on the global FX market can be lots of fun and a viable way to make money over time. It is however essential for traders to know what they are doing first, and this means avoiding the most common trading mistakes, as shown above.
