Trading Markets

Learning about the common mistakes new foreign currency (Forex) traders make will help you to improve your skills and chances of being successful. Here are some common mistakes and assumptions new traders make:
- Misplacing Stops
Stops are necessary to avoid disastrous losses, however poorly positioned stops can be equally as disastrous. Before placing a trade the trader should calculate the risk to reward ratio for the trade. The stop should be set with the traders money management in mind and should not be too close or too far away from the price. Traders should also calculate shifting their stop as the trade goes in their favor to lock in profits and lower potential losses.
- Abusing Leverage
With Forex brokers providing up to 400:1 leverage, it's easy for new traders to get carried away with the dream of making fast profits. When traders use a high amount of leverage the profits can be astounding, but when the trade doesn't work out the result can be disastrous. Traders should always compute the dollar value of the risk they are taking for each trade and ensure that this is suitable for their investment balance. Experienced traders seldom risk more than 2-3% of their investment balance on any one trade.