Top 3 Common Psychological Mistakes in Forex Trading
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Hello everybody, this is my first blog post so I’ll take the opportunity to introduce myself. My name is Adam Slachevsky and I’m an account manager here at eToro. I’ve been a trader for several years now, started off trading stocks and bonds and continued on to Forex in the last couple of years.
I wanted to share a little bit of my experience in trading and the first mistakes that I made when I started trading. These mistakes are the most common ones, and they keep reoccurring almost every time that I meet new traders, especially traders in the Forex market. I want to also offer 3 simple rules to follow which may help you prevent these common psychological mistakes.
Mistake number 1: Emotional attachment to losses – this is not by accident the first mistake on the list as it is the most common mistake that new traders tend to do. You set a stop loss to a trade at 100 pips, the trade doesn’t go your way so you adjust the stop loss, when you reach the 200 pips point, you decide in your mind “how low can it go?!” or “it must go up,” and you keep adjusting the stop loss until you are destined to lose much more than you were willing to initially lose on that specific trade.
Mistake number 2: Taking small (or really small) profits. In a way, the execution of this mistake is very similar to mistake number one except of course it goes in the complete opposite direction. You enter into a trade, see that you are “in the green” and decide to take the profits before you reach the take profit that you had initially planned.
Mistake number 3: Trying to recover losses in one big trade. After you suffer some losses you decide to open up one high leverage trade to recover all the losses that you suffered on your trades in the past.
Let me offer you three simple rules to prevent these two mistakes:
First of all detach yourself emotionally from your trade; this is not a long term relationship. Remember – this is a business and like any business if it’s not profitable, then you should sell/close the business.
Second, decide on a strategy and stick with it. Choose a risk/reward ratio on your trades, if the reward is higher than the risk and if you have 60% winning ratio on your trades, over the long run (after a month, quarter and even a year) you’ll be in profit.
Third, use low leverage and don’t risk more than 2% of your equity on a single trade. In order to succeed in rule number 2 you have to follow this rule.
The rules are very simple and for some reason very hard to follow, with a few years of experience I find it also myself sometimes hard to keep disciplined. But as long as you keep discipline, believe in yourself and stick to your strategy you will have a much better chance of becoming a successful trader.
Good luck to all you. And if you have any comments or questions feel free to contact me through my OpenBook wall.
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Being newbie in stock exchange gives me chills, however it is basically a huge pool of money that traders and institutions trade back and forth.
I am a beginner and I have experienced above all your mentioned...its so true that we cant avoid emotions...totally agree with your suggestion...cheers mmk
Yeah, some important basic steps that even after pro level you need to stick with it. Great forex guide can not give your success, you need your own strategy.
Well there is another mistake, which you forgot to mention which was greed. I have a question for you how do professional traders tackle fundamental news? Most of the time when i start losing is because of news. I have very good technical indicators which help very much and because i have been trading from 2years i also know when to use low leverage and when to use medium. But the news impact as we see in calendar is just a forecast, I'm not usually sure about forecast because they don't always turn out as i expect. Sometimes they do but not every time. Usually i get confused between h4 and daily charts. But now i believe we should try to stick with the daily charts. But than we're missing short profits. So, trading becomes boring as you know if your using low leverage profits arise in a week depending on your position. Lows are good to buy but as we can see eur/usd monthly chart and weekly chart it's gone severely down. USD/CAD is also a good pair and lesser volatile compared to EUR/USD. But than we have to know about the trend. I think trading with the trend is more fun. But also difficult to stick with. Only way to stick with the trend is through practice. Good luck everyone. Bye
Hi Hammad. I agree, greed is also a common psychological mistake. I do believe the more you can detach yourself from the emotional side of trading, and trade according to a set strategy with a lot of indiscipline you can get much better results. Regarding fundamentals Vs technical - well there are a lot of opinions, and I think that you just gave me a good idea for my next blog post. But the main idea is that technical trading works - but it's not an exact science. I believe that you cannot trade technical without being aware of the news and what is going on in the market. In any case keep on following me on the openbook - I will post a more substantial blog regarding this issue.
Sorry but there are also some traders who always goes against your rules and they are actually in 100% profit. So how could you impose your own rules here !
Hi Lalit. Thanks for your comment. I also forgot to mention of course rule number one - There are no rules! obviously there is no rule that can be applicable to all. But as I mentioned this is what I've learned from my own experience as a trader and as an account manager.
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