As a forex trader, you’re going to be making a lot of mistakes.
It’s just something you have to live with.
But whilst most mistakes aren’t that costly there are some which, if you make them, will really put a dent in your account and derail your career before it’s even started.
Here’s an overview of those mistakes.
Mistake #1 Leaving A Losing Trade Open
Out of all the mistakes listed here, this one takes the cake for being the worst.
Why does it happen? Well, traders often have a hard time accepting they might have made a bad call and might lose some money. They hope that if they keep their bad trade open, the price will eventually change its mind, flip around, and head back the way they wanted it to go. That way, they think they might just break even or make a tiny bit of profit.
But reality check, that usually doesn’t happen. Nine times out of ten, instead of going back the way the trader hoped, the price keeps marching the wrong way. The loss gets bigger and bigger until the trader loses all their money, busting their trading account in the process.
That might sound like a worst-case scenario, but trust me, it’s a pretty common mistake, especially if you’re just starting out.
Unfortunately, there’s no magic trick to avoiding this problem, other than understanding how risky it can be to leave bad trades open.
So, here’s the big takeaway: if you find yourself in a pickle with a bad trade, get out of it ASAP. Don’t hang around hoping the price will change its mind, just close the trade and move on. You’ll thank yourself later!
Mistake #2 Averaging Down
Keeping a losing trade open is bad, but guess what? There’s something else that can make it way worse: Averaging down.
You might be thinking, “What’s averaging down?” Well, it’s a strategy some people use to try to recover from the losses they’ve had by leaving a losing trade open.
Here’s how it works: instead of closing the trade and taking the loss, those who use the averaging down strategy decide to place even more trades. They’re betting on the idea that if the price bounces back up, the profit from these new trades will cover up the losses from that original losing trade.
Now, on paper, averaging down sounds like a pretty cool idea, right?
But trust me, in real life, it’s a complete mess. Here’s why: The moment a trader decides to place more trades is almost never the exact time when the price is about to turn around.
So what happens? Instead of the new trades making up for the losses from the first trade (the one they’ve left open at a loss), they actually pile on more losses. So the trader starts losing money even quicker than before.
I cannot overstate how risky averaging down can be. It might seem like it could work, and yeah, sometimes it does, but in the long run, it’s likely to result in you losing all the money in your account. So, do yourself a favor and don’t even think about it!
Mistake #3 Revenge Trading
Revenge trading is when people start making risky moves after losing a bunch of trades or a big chunk of money.
Why does this happen? It’s because losing money can really sting.
Nobody likes seeing their money slip away. So, when people lose a lot from trading, their gut reaction is to do something, anything, to get that money back.
This usually means they start making bigger trades than they normally would.
Why? Well, bigger trades mean they don’t need the price to move as much to earn back what they’ve lost. It’s kind of like a shortcut to recover their losses quicker than if they just kept trading at their usual size.
But here’s the catch: revenge trading can be super dangerous. The trades that people make to recover their losses usually end up losing as well. This just makes them lose even more money and feel the need to keep revenge trading to make up for the new losses.
It’s a vicious cycle that can make someone lose all the money in their account. Sometimes, they’ll stop before they lose everything, but not before they’ve still lost a lot.
Not everyone falls into the trap of revenge trading. But if you find yourself starting to do it, the best thing to do is take a break.
Don’t make any more trades. Don’t even think about trading.
Just go and do something totally different.
Doing this will help clear your head of any anger or frustration from losing money. It means you can start the next day with a fresh mindset and a hopeful outlook.
The Bottom Line
Even though nobody can trade without messing up sometimes, if you can dodge the top 3 errors I mentioned, you’re less likely to land in hot water.
Keen to learn more about common blunders traders can make? Have a look at my article, “6 Tips All Forex Traders Should Know”.