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8 Common Pitfalls to Avoid While Trading the Financial Markets

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Forex trading is a competitive sphere, where mistakes can sometimes cost a lot. The expectation of gaining high profits attracts many individuals; however, insufficient knowledge and overconfidence can be disastrous. Indeed, financial markets have the potential to yield high returns, but avoiding the following common mistakes can significantly improve your trading experience.

  1. Over leveraging

Forex trading involves the usage of leverage, and relying heavily on this tool is dangerous, especially when combined with placing large trades to begin with. Most novice traders make that mistake at least once in the beginning of their trading journey. It is advisable, thus, to use the appropriate leverage for your account size and perhaps start with a micro account while applying sound risk management.

  1. Lack of proper knowledge and experience

Trading is a challenging domain where various professionals, institutions, and banks operate to obtain profits. These conditions bring complexity to the markets, which novice traders can sometimes overlook if they lack proper knowledge. Participating in financial markets without adequate preparation, knowledge, and practice can lead to a trader’s downfall.

  1. Trading without a fixed plan

Creating a definite trading plan that suits your trading style and goals is essential for remaining disciplined during trading. Most traders disregard the importance of sticking to a plan, making arbitrary decisions against their initial strategy. This inconsistent attitude only delivers unstable results and ultimately can cause significant damage.

  1. Trading with emotions

Letting your emotions control you is the worst thing you can do as a trader. Although emotions are as natural as breathing for humans, they become detrimental during trading. Getting angry, greedy, and fearful can cloud your judgment and compel you to make irrational decisions.

  1. Trading without stop-losses

It is a common fact that a large number of traders, irrespective of their experience, ignore the use of stop losses. They hope that the market will go in their direction and sometimes open more positions, adding to their mounting losses. No trade is guaranteed to go into profit; therefore, stop losses are used to protect your capital and minimize your risk.

  1. Lack of setting profit targets

Setting profit targets is an essential part of your trading plan as well. Before opening a transaction, you should determine your stop loss and take profit levels. Since the market can react quickly to news events, you have to secure your profit by setting a realistic target.

  1. Impractical expectations about profits

Many traders enter the trading arena with unrealistic expectations to gain massive profits too quickly. However, if their trading does not go as expected, they become aggressive, opening large lot sizes and making further poor decisions. The key is to grow profits steadily, and not to allow greed and over trading influence your decisions.

  1. No tracking of past trades

Trading is all about continuous learning and making yourself better than before. If you don’t monitor and learn from your past transactions, you will not be able to make progress, and you’re bound to make the same mistakes, over and over again.

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