In the Forex market, losses may occur for various reasons and if adequate measures are not taken beforehand, a big amount of money can be lost. Newbies are very careless to measure their trading goal in advance and this activity does not help to make a profit in the future. We will discuss here, the common mistakes in trading that may reduce the profit.
As a beginner, one should not make their investment bigger as it may increase the chance of loss. And if a novice trader loses a big amount of money, it can be very frustrating. Fragmentation of the investment may provide the best result. When profit will be made in various stages, scaling can be done in the investment.
The risk to reward ratio
Before rushing to execute the real trade, one must predict his trading using the risk to reward ratio. According to experts, an exact risk to reward ratio is 1:3 and professionals calculate the math before buying the financial instruments.
1:3 indicates if our investment is 3 dollars, we must not take the risk of more than 1 dollar. Studies show that this method works to estimate the exact loss measurement in advance.
Beginners are reluctant to estimate their risk before buying the trades and this behavior makes them vulnerable to unwanted loss. Experts focus on the performance of their overall trade and not on the single financial instrument for the measurement of the risk.
Setting up a stop-loss point helps to close the trade automatically when the moving average will reach a certain point of the downtrend. Amateurs fail to understand the benefit of this technical option and do not set it. Therefore, they become the victim of unexpected loss.
Even some traders become unable to control their greed. They frequently change the point of the stop-loss order downwards and this activity may make their account zero at last. So, always use protective stops and trade the market with the high-end brokers like Saxo markets. By choosing a great broker, you can ensure that the trades will be closed at the right price.
Lack of research
Buying financial instruments deal with a lot of research that may lack by an amateur investor. Without making enough research, no one can make a profit on this giant platform like Forex. The investors must have enough knowledge about the market place and they can gather this by the fundamental and the technical analysis.
Newbies do not care about the research and buy financial instruments without any in-depth research. This may suffer them in the long run and recovery from this situation can hardly be possible.
Take profit order plays a vital role by closing the trade at our desired level. Everyone can identify his capability about how much profit, he can make. Evaluating risk to reward ratio, an investor should set the take profit order so that his trade closes after taking a certain amount of profit.
Most of the rookies feel greedy and do not set a take profit order. Later they lose their money in a sudden bearish market sometimes which can influence their investment too.
Trading is not a place to show emotion and investors may lose a great deal of wealth because of their emotional imbalance. In the beginning, if a trader earns some money, he should not be very excited and invest a big amount of money. He should keep calm and sharpen his next action plans by eradicating the previous mistakes.
Based on observation, now, it is transparent to us that before executing the trades, beginners should be conscious of different types of mistakes that can be overcome with little care. When newbies will be able to lessen the number of mistakes, making money from the Forex will be a lot easier. Last but not the least, trade with the market with strict discipline.