Even though the Forex market can be a great place to make a substantial profit very quickly for investors, there are some common mistakes that you need to be careful to understand. These pitfalls are all avoidable and knowing what to watch for is half the battle. By spending the time required to develop an investment plan for your Forex trades and avoiding these common mistakes, you can earn a nice income from your Forex investing.
Trade with Your Head and Not Your Heart
Any type of investing is an emotional experience that can cause many people to stay in a position too long. They are either chasing a profitable currency pair for longer than they should or hoping a bad trend will reverse and return their investment. Both of these scenarios will cost you profit and are purely emotional decisions that have little to do with the fundamentals of picking a good investment. Avoid this pitfall by always knowing what you are expecting from a particular investment and determine your profit and tolerable loss before ever making the trade. This way you can minimize the emotional component that can lead to losses in the Forex market.
Create a Plan and Stick To It
Most new Forex traders do a fair bit of research and preparation before they start trading with actual money. They may open an account that allows them to practice their trades to try out some of their investment strategies. In most cases they have read a few books on the market and may even have sought the advice of a friend that trades Forex. The one thing they almost always forget to do is putting together a plan for their investments. Making money in the Forex market requires much more than simply picking a currency pair and buying it. You have to clearly understand what your investment goals are for the week, month and year to be able to know when and how much to invest. By setting these goals out in a chart you can be sure you do your best to reach them and not make the mistake of chasing a loss.
Greed Is Never Good
One of the most common and expensive mistakes that new traders make is getting greedy. This can happen in a few different ways and all of them are dangerous. Chasing a profit in a trade well beyond your original goal may work for you occasionally but will get you into trouble over time. The odds of you making a little extra profit in any given trade by staying in a position a little longer is good. The downside of this strategy is that over time the chances of you losing most of your profit as these gains reverse themselves is almost certain. Another greedy trap that some investors fall into is putting too much of your capital into a single trade. You are always better to spread your equity out over several smaller trades than betting big on any one opportunity. This way if a few of your trades are losers, and they always are, you can still profit from the winners and increase your earnings slowly.