Trading is tricky, and it’s easy to make mistakes - whether you’ve just started trading or you’re more experienced.
From widening your stop loss to falling into the trap of greed once you’ve made a profit, we all make mistakes - it’s part of the learning process.
The key to successful trading is not to make the same mistakes again and again - for example, responding impatiently every time you suffer a loss - but to up your game and improve your performance for next time.
So - what are the most common mistakes made by traders - and how can you avoid them?
3 Most Common Trading Mistakes
Mistake #1: Not understanding currency correlation
This is a mistake first-time traders usually make, because it isn’t always obvious. But the good news is that it’s one of the easiest to avoid!
Currency correlation is the idea that currency pairs often move in similar ways - for example, moving in the same or opposite direction over a period of time.
If you have multiple positions open - and each position consists of a different currency pair - you may be exposed to risk. For example, usually, trading AUD/USD and NZD/USD is like having two identical trades open because they usually move in a similar manner.
So you can see the problem: you may be unknowingly exposing yourself to double the risk. It’s essential, then, that you understand how currency pairs move in relation to one another.
In order to avoid making this mistake: read up on currency correlation, make sure you’re aware of how many pairs you’re trading at once, and in most cases, make sure you pick one out of two setups.
Mistake #2: Widening your stop loss
If you’ve ever found yourself in a losing position and found yourself considering widening your stop loss, you’re not alone - but remember that stop losses are there for a reason!
It can be tempting, we know, to think ‘I’m already losing. May as well wait in the hope that the market turns here.’ But this is a huge mistake!
Widening your stop loss will only increase the losses you make. It’s far better to take the hit as it is than let it run. Trust us.
Amend your trading plan if you need it in writing: never widen or remove the stop loss. It will end badly!
Mistake #3: Getting ahead of yourself
This one is about your state of mind - equally as important as making a technical faux pas!
It’s very easy to sit down at your desk and think you’re in the right frame of mind - but you might not be. Do you feel yourself getting agitated as the market turns against you? Or thinking about what you’ll spend all of your money on once you’ve made that profit? Or are you thinking this next win must be big enough to override your losses?
If any of those sound familiar, you’re probably not in the right headspace. The most successful traders exist in the moment, patiently. Getting ahead of yourself - either by dreaming up big wins or plotting revenge trades - is usually likely to result in losing your capital. You won’t be calm and focused on the trade at hand - assessing the trade with a level head - but plotting something in the future.
This is a common mistake and often takes a lot of practice to rectify. But with perseverance, you can get there!
Make sure you stay focused on the trade you’re making, and try not to let your mind wander. Basically: keep your head in the game.