Forex is a hybrid word that represents Foreign Exchange. It is most commonly used to describe foreign exchange trading. How does forex work? Forex is changing one currency for another.
The pairs, in forex trading, are preset sets that are paired up by brokers that allow account holders to make exchanges. The object of making exchanges is to hold the trade until the value increases and then exchange the currency back.
In forex trading, you make a profit. For instance, if the brokers offer currency pairs like EUR/USD or European Dollar vs. US Dollar, if you would be buying Euros against the US Dollar, and if EURO increased in value against the US Dollar, you make a profit. You need to close or end your deal to lock in your profit. Now, listed below are the common mistakes that Forex traders make.
(1) Not keeping records of your trading
Most forex traders tend to forget to keep records of their trading. Not keeping records of your trading is like owning a business with no records of your inventory, your average ticket sale, how long your costumers stays in your store, the average wholesale price of your best selling items, and many more.
It is important to keep records of your trading in order to keep track of how much you lost or how much your profit is. Just like any other business, preserving a record is a must. By keeping a file, you learn that specific strategies, certain things work, and others do not. In this way, you will be able to know your way into making more profits.
(2) Failing to do your homework
This is one of the most common mistakes that forex traders make. In Forex trading, if your goal is to lose more money as quickly as possible, and not making more money, then you can go on ignoring your homework.
This “homework” is your market knowledge. You can’t go on trading without knowing the basics and even some of the complicated information there could be about the trade you are about to enter. To reiterate, market knowledge is an essential requirement before you engage in forex trading.
What can I say? As the song goes, “Too much of something is bad enough.”
Overtrading is doing a lot of trades. And once you make a lot of trades at a time, you are more likely to lose quickly than a careful forex trader. Remember, greed is a dangerous thing.
(4) Trading too large
Mostly, people who lose a lot in forex trading are those who bet it all. Most forex traders learn this lesson too late.
(5) Not having a trading plan
In every action, there must be a plan so that you will not get lost with no other options in mind. That is, for me, the most terrible thing that could happen to a trader aside from, well, of course, losing. Not having a clear and concise plan is a big mistake in forex trading.