Don't Risk It: Top Forex Trading Mistakes
Foreign-exchange turnover now exceeds US $7 trillion a day, but the same leverage that makes the market attractive can erase an account in minutes. Below is a research-driven review of the most common
forex trading mistakesidentified by analysts at Investopedia, BabyPips and FXStreet, together with practical steps to avoid them.
1 Trading without a written plan
Investopedia ranks âno trading planâ as the single biggest error made by new speculators: ad-hoc decisions invite inconsistency, revenge trading and cognitive bias. A documented plan should define strategy, time frame, entry criteria, position size and exit rules. Traders who formalise these elements and track outcomes in a journal outperform discretionary counterparts because the process enforces accountability and post-trade review.
Action point: Draft a rules-based plan, back-test it on historical data, and review live results weekly.
2 Overleveraging in forex
Retail brokers routinely offer 1:200 or even 1:500 leverage; a US $1 000 deposit can control half a million dollarsâ worth of currency. BabyPips calls misuse of leverage the ânumber-one reason new forex traders fail,â noting that a two-per-cent adverse move wipes out a 100Ă-leveraged account.
Action point: Risk no more than 1â2 % of equity per trade, size positions so a standard deviation move cannot trigger a margin call, and reduce gearing further ahead of major data releases.
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