Forex Trading Tips: Advice & Mistakes to Avoid | Smart Prop Trader

You’ve probably seen influencer videos on YouTube or TikTok promising to share how to make a tonne of money on forex markets. And being the dreamer that you are, you’ve probably already jumped in with your meager savings. Well, the truth is that people lose money in forex markets more often than you think.

In fact, FCA reports show that up to 76% of forex traders lost money in 2021/22. The number is even higher for beginner traders, with some estimates suggesting that up to 95% of beginners lose money on forex. Of course, one of the main reasons for these losses is the lack of adequate knowledge and experience.

You’ll be surprised how many people are willing to risk their money without a good understanding of the market and risk management principles. We surely don’t like seeing people struggle in forex markets. It’s sad watching traders lose money due to amateur mistakes. Sheer determination and will is no substitute for knowledge and experience.

On that note, we are going to share our secrets to forex trading. An investment in enlightenment pays superlative interest. Everything you need to be a successful trader, you can find here.

No one is born a super good forex trader; everyone starts somewhere. Have a hunger for knowledge, and practice risk management, discipline, patience, and stoicism so your trading style isn’t one of fear, impulse, or greed. The following forex trading tips emphasize the skills and competencies you need to prioritize to be a successful forex trader. Here’s a look:

10 Forex Trading Tips You Need to Know to Be a Successful Trader

The following is a list of the top ten things you need to do in order to be a successful forex trader:

1. Understand the Markets

The forex market is a 24-hour global marketplace for trading currency pairs from Monday to Friday. Currencies are assigned a 3-letter identification code and offered in pairs comprising a base currency and a quote currency. The exchange rate indicates the amount of quote currency needed to buy a unit of the base currency.

There are various ways to trade forex, including swapping major currency pairs based on real-time data or entering privately negotiated or standard contracts (forward and futures market, respectively). Familiarize yourself with this information and the different forex market terms so you don’t feel like the kid whose dog ate his homework once you start trading. Research is time-consuming, but it will save you headaches and blunders big time.

2. Set up a Trading Plan and Stick to it

Every successful forex trader has a plan that helps them know which major currency pairs to watch for trading opportunities, how much to trade, and when to take profits or cut their losses. A plan helps make comprehensive decisions. If you don’t know how to make a plan, use someone else’s as an outline. However, remember to consider your goals, motivations, risk-reward appetite, strategies, amount of capital available, and time commitment. The more personal your trading plan, the easier it will be to use. Remember to include an evaluation criterion, too. Above all, always execute trades according to your plan’s parameters.

3. Get as Much Practice as You Can

Practice makes perfect is an old saying, but it is truly important for forex traders. Once you’ve trolled literature and the internet for forex trading ideas and made a trading plan, test everything in real market conditions. A demo trading account with SPT allows beginner traders to put their strategies to the test without risking real capital.

4. Forecast the Market Climate

Forecasting means using fundamental analysis, technical analysis, or both to identify potential winning trades in the market. Fundamental analysis involves examining political and financial data as well as the news while technical analysis relies on graphical tools like Fibonacci and trend lines and indicators like moving averages and relative strength index to predict market trends. Choose the type of analysis that suits your trading strategies.

5. Understand Your Limits

The most crucial information about direct trading is never to play with money you can’t afford to lose. It’s a common mistake among beginner traders. For example, you decide to trade with rent or school fees money. The rational thing is to set aside some money like you do when you want to take a vacation. Once you have capital, determine how much to risk per trade and set a suitable multiplier (leverage ratio) to limit your exposure. Otherwise, you’ll start losing money rapidly.

6. Know When to Exit Trades

Forex trading requires one to observe the market and know when to enter and exit positions. But since no one has the time to sit and watch graph movements every minute of every hour, it’s easier to use a limit order to enter a trade automatically once the price reaches a specific point and a stop order to lock in profits or limit losses depending on how the market moves in relation to the entered position. However, if the market is moving quickly, these orders may not be executed at the set price. Setting stop and limit orders too close can also lead to premature closing and losses. Always use caution when setting stop and limit orders as part of your trading strategy.

7. Leave Emotions out of It

Rationality is key to forex trading; never ever trade with fear and greed. They can push you to enter a trade late due to FOMO or dump your strategy the moment you start to experience a loss. Emotions are part of our human existence. Even the best traders get caught up in them every once in a while; the only difference is that they are quick to realize when it is happening and start acting objectively. You’ll get better at controlling your emotions with every trading decision you make. Don’t get too invested in the outcomes; just make prudent decisions and remember there are some things beyond your control.

8. Keep It Slow and Steady

The shift from demo accounts, where you’d been trading with a million dollars, to real investor accounts, where you only have a couple hundred dollars, is always hard. The risks are actually real, and the profits aren’t as massive as you were getting in the other account. The downside of trading only a few hundred dollars is also that there’s no psychological stimulation because it’s impossible to turn the amount into a million dollars in a year.

However, beginner traders should remember that consistency is all that matters. Stick to your trading plan and remain disciplined even when the market moves against you. Just like every other trader, you’ll make losses from time to time. The key is to remain stoic, focus on your goals, and learn to recognize and take advantage of profit opportunities.

9. Don't Be Afraid to Explore

Trading plans are important, but they shouldn’t be set in stone. While it’s easy to get caught in the cycle of doom by changing strategy every time you make a loss, it doesn’t mean you should stick with an ineffective strategy forever. Feel free to dump a strategy that’s excessively risky and draining your account balance or hasn’t produced profits over a sustained period. Watch out for new regulations or changing market conditions. These can cause a strategy to fail completely. While at it, monitor your goals and financial situation and update your plan accordingly.

10. Choose a Suitable Forex Broker

We can’t overstate the importance of working with a super-duper forex broker. Look for an FCA or NFA-regulated partner with a good reputation and high-quality customer service like Smart Prop, aka SPT. Don’t work with a platform with little online availability, limited features, hidden fees, an inconvenient user interface, and a complicated payment process.

The Biggest Forex Trading Mistakes You Should Avoid

Of course, since we’ve shared some forex trading tips, it’s only right that we tell you the biggest mistakes to avoid so you won’t shoot yourself in the foot. A lot can happen when trading forex; watch out for the following mistakes and how to avoid them:

Not Using a Trading Plan

A forex trading plan is an extensive decision-making tool that allows you to execute trades based on available capital, market knowledge, risk-reward ratio, and investment horizon goals. Good luck evaluating the performance of your trading strategy without clear time-defined goals. You also won’t know when to hold a position or exit and take profit or loss. But formulating a trading plan does not have to be tough:

• Simply start by defining your motivation.
• Decide on the amount of time you are willing to commit to trading activities.
• Set SMART goals (specific, measurable, achievable, relevant, and time-defined investment goals).
• Choose the suitable risk-reward ratio.
• Determine the amount of capital available.
• Find a good trading strategy.
• Set evaluation criteria, including recording performance for later review.

Overtrading

Overtrading is a common rookie mistake. It happens when a trader has been making consistent profits, then they get greedy and decide to increase their investment per trade for more profit. Don’t entertain such ideas. Only invest the money you are okay with losing. Overtrading throws emotions into the equation; whenever the market moves against you, your balance drops big time because you invested a higher percentage of your portfolio. In the end, you’ll find yourself panicking and selling more often than you normally would. Always trade with an amount you are comfortable losing to avoid being swayed by emotions. Forex trading is not a get-rich-quick scheme. Always aim for slow, consistent results.

Not Using Stop-Loss

Every trader has suffered from this mistake at one time or another – not setting a stop loss order. You see a trade, it looks extra bearish, and you happily enter because you think it’s about to fall to kingdom come. You don’t set a stop loss because excitement and greed are keeping you from thinking clearly, or you are just too lazy. You step away from the monitor for just a few minutes, and when you come back, the chart has had a massive upward trajectory, leaving you with a massive loss. It happens more often than you think. In fact, when most people find themselves in this situation, they simply opt to wait it out, but then the currency pair just keeps rising and rising, and soon, they have to exit the trade unless they want it to wipe out their account balance.

There will always be a point in a trade where you don’t want to keep holding if the price goes below that point. Some people like larger stop losses, while others like tiny ones. The size doesn’t matter; your risk appetite is the most important thing here. Always have a stop-loss order. It is extremely important, especially in day trading. It marks a point on the chart below, which your trading position automatically closes, allowing you to try again later with winning trades.

Not Limiting Losses

As mentioned, it’s easy to let losing trades run, especially those without stop-loss orders. Taking defeat is tough. Most traders try to justify this action by using various reasons, but it doesn’t matter. Never let losing trades run if you can save some money. Cut a losing trade before it completely ruins your portfolio with a massive loss. This is easy with the use of a protective stop-loss order. That way, you won’t be tempted to let a losing trade run your plan to the ground.

Analysis Paralysis

Analysis paralysis is the inability to make trade decisions. As mentioned, analysis in itself is trying to extract some sort of pattern from news and financial data. However, this can be tough when over-analyzing is involved. Overthinking and using too many indicators can lead to information overload, especially when dealing with a trading plan that lacks clear-cut rules. You’ll end up trapped in an infinite loop of cross-examining every decision, leading to procrastination.

A lot of people think they are smart, diligent, and responsible by overanalyzing decisions, but looking for perfection in every decision only leads to a hamster wheel that you can’t get off. Use clear-cut trading, do a certain amount of analyzing, and stay objective in every decision.

Final Thoughts

To summarize, it’s tough to earn money on forex due to silly mistakes. On the other hand, it’s easier to prosper on trading platforms by conducting extensive research to familiarize yourself with forex trading tips and the biggest mistakes to avoid. Above all, work with a good trading partner.

SPT is a trusted trading platform with virtual currency but real rewards. We are an oriented, education-focused forex broker with the best spreads and commissions. We will give you money to trade with and reward successful forex traders with increased account balances and up to 25% of the profits in real money.

Make the smart choice with SPT and have access to a team of dedicated experts to help with any account-related issues and a discord channel to chat and learn from other successful forex traders. Feel free to visit our platform for more info.

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