After seeing new forex traders struggle, I’ve identified several common mistakes that often lead them to financial ruin. These mistakes can easily be avoided. Here they are:
1. Trading Small Time Frames. By trading the one, five, or fifteen minute charts, you’re trading more noise. This often leads to traders being whipsawed out of positions and sustaining multiple losses.
2. Using A Martingale Strategy. Doubling up after every losing trade. I guarantee you will lose 100% of your account if you use this disastrous strategy.
3. Not Using Money Management. Risking too much of your account on one or two trades isn’t a good idea. You will inevitably be wrong two to three times in a row and then your account will be depleted.
4. Using a 1:1 Risk To Reward Ratio. You have to take positions with tighter stop losses and bigger take profits to make money in the long run. Otherwise, you’ll never be able to recover after a few bad trades.
5. Using Simple Moving Average Crossovers. If developing profitable trading systems were this easy, we’d all be millionaires. Trading is much more complex than that.
6. Using Expert Adviser and Signal Services. If these experts could make as much money as they claim to, they wouldn’t be selling their services or signals for a few measly dollars per month. Ask for an audited track record and you’ll never get one.
7. Not Sticking To Your Strategy. The only way to determine if your strategy is profitable or not is to actually test it. Both backtesting and forward testing should be used. You have to actually stick with your own trading rules or you don’t know how the strategy actually works.
8. Not Using Stop Losses. It is amazing how many forex traders say they don’t believe in stop losses. All profitable traders who have been in the game long-term use stop losses. Simple as that.
To have a better chance of developing into a profitable trader, you should avoid these common mistakes.