As a trading instrument with the largest trading volume in the world, forex has huge profit potential. However, you must be able to minimize the risks to be able to make a profit. Thus, you have to avoid some common trading mistakes that make you lose.
Check out these 4 common trading mistakes that you must avoid:
No Limiting Trading Capital
Before starting trading, you are strongly advised to limit the amount of capital you use in each trading session. Without good capital management, you will get a greater loss risk.
Additionally, a professional trader recommends using 10-20% of the total capital in each transaction session. For example, if you have a total capital of USD 1,000, make sure you only use USD 100 to 200 in each transaction session.
Overtrading
Overtrading or excessive trading is one of the things that you should avoid in forex trading. According to Investopedia, overtrading, also known as churning, is a prohibited practice under securities law. Moreover, most traders who overtrade don’t do enough analysis before placing their trading positions. As a result, overtrading has greater risks than profits. Besides, overtrading will also hurt you due to transaction costs cuts from forex brokers.
Using leverage too high
You should avoid using leverage that is too high when you are not sure of the transaction you are doing. Although leverage gives you greater profit potential, it can also increase your risk of loss if the trade moves not according to estimates.
Open Many Positions at Once
Opening a trading position simultaneously on several currencies at the same time can make you unfocused in conducting an analysis. Especially if the currency pair you choose is completely different, such as EUR / USD and GBP / JPY.
That is because each country has different economic movements and requires different analytical techniques. Thus, you will have difficulty predicting price movements when there are economic changes in several of these countries simultaneously.
Read more: How Can Politics Affect Currency Values?