Four Common Mistakes while trading Fx
Do you repeat these common mistakes and lose money in Forex trading?
Avoid these mistakes to increase your chances of success in the Fx market. Four mistakes traders must avoid when placing a Stop-loss
Have you ever tried placing a trade with a stop-loss? Or watch the market taking you out and continue right in your desired direction?
This scenario is usually common among traders in the market. In this article, we will tackle some common mistakes, and also, let’s learn how to get rid of them.
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Stop-Loss is too tight
It usually happens to many traders before going in their desired direction. If you have a tight stop-loss, you might increase your position size if you aim for a high success rate. It might work out from time to time, but we won’t let the greed cloud our market analysis.
When you are calculating the size of your position, do not let greed overcome you. Place your stop at a technical level where you know your idea is wrong. Don’t be like other traders who always get stopped out before the market goes in their direction.
Stop-Loss is too wide
Having it too wide is the opposite of a tight stop-loss. Losing money is the greatest fear of many traders. So they use wide stop-losses to avoid getting stopped out each time they enter a trade. The problem is your risk to reward gets skewed since you can only open a small position.
You can fix this by journaling and taking notes about your Maximum Adverse Excursion. It measures a huge loss suffered by a single trade while it is open. Therefore, if you enter the trade with 40 pip stop, with100 pip target and the trade goes 20 pips against you, your MAE is 20 pips. You can tighten your stop-losses and find out your MAE easily by taking notes in your journal. And adjust them depending on your trading results.
You place a Stop-Loss at a level where everyone else does
For many years, Technical trading education has been the same. And these are Charting patterns, tops, double bottoms, head and shoulders, etc. Many traders use these in their decision every day. You will find these areas in technical analysis books and videos to get probed first before taking the real move. Keep in mind to be aware of areas where there is a possibility of other traders stopping out. Also, try to adjust your stop-loss based on that. Or else, you might end up like other traders who entered a position based on a break of the neckline.
Stop-loss based on fixed pip/dollar amount
Lots of traders use technical analysis in their trading. Placing a stop-loss at a random level based on pip or dollar value is one of the most un-technical things to do.
For example, you open 1 lot on EUR/USD, and where 1 pip equals $10.
If you don’t want to risk more than $50, so your stop-loss is 5 pips.
As you can see, the market does not care if you have your stop loss with 5 or 10 pips. So make sure that you put it in a place where your trading strategy or analysis demands it.
Conclusion – Apply a StopLoss wisely to avoid hitting it frequently.
If you are a trader struggling with placing your stop-loss, taking down notes in a journal is the best way to fix it. So you can track your past trades, and you can quickly see what went wrong.
Remember that trading is a risky business, and this article is not a proposal. As a trader, you should consider your financial situation and only risk the amount you can manage to lose.
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