Author: Shams ul Zoha
X Mistakes even Experienced Forex Traders make
The art of financial trading becomes easier only after months of struggle and dedication. A trader may have to go through various margin calls and portfolio liquidations before he finally sees some consistency. Even after becoming a professional, the chances of losses are never slim enough, as a single mistake can land the big boys amongst the losers. However, as we discuss here, it is possible to reduce the error margin by learning all the major common trading mistakes beforehand.
Knowledge is power, but only to a specific limit. Professional traders have a tremendous amount of information related to both fundamental and technical aspects, which sometimes leads to overcomplications. A cloud of confusion develops in a trader's head as he continues grabbing every single fact. He has various setups in his mind where some indicate a sell and others a buy.
Trading with borrowed money
As soon as a trader achieves a certain amount of consistency or gains, he starts looking for investors to quickly grow his portfolio. Taking loans from banks, friends or family is a standard option. While bigger equity is beneficial to trading, it also means that the market participant has a lot of emotions. A slight mistake can lead to significant debts and the trader may struggle to return the borrowed money, along with the added interest.
Staying in the negative territory
Some professionals have a habit of holding onto their executions for an extended period. While having a proper game plan limits this error, traders who use martingale or grid strategies may suffer significant losses. Studying the history of the markets, you will realize that it is filled by instances where a hedge fund or its trader held onto a position for an extended period, which then led to bankruptcy.
Leveraging too much
Greed is a common enemy of traders, whether they are beginners or professionals. To satisfy their lust for making bucks quickly, participants leverage their accounts significantly. Leverage is the use of borrowed money from your brokerage. While this cash can allow a trader to open trades with bigger lot sizes, the amount of exposure is also significant. A professional investor who has $100,000 in equity and uses 1:500 leverage can open positions worth 500 lots. In this case, a single pip change will shift the equity value by $5000 instead of $10 in the case of a normal margin. This is one of the most common mistakes in forex trading, where leverage is readily available.
Trading without a stop loss
It is possible to progress in professional trading without the use of a stop-loss system. Such traders use mental stops to exit their positions, whenever certain market conditions arise according to their setup. While this strategy may be good for scalping or short-term trading, swing traders can face detrimental outcomes.
To understand better, consider the case of 2018 when Bloomberg indicated that China was planning to halt the purchase of US treasuries. The news spread like wildfire leading to a significant drawdown in equities. Investors with long positions, without proper exit methods had to take losses.
Trading can be exhausting. As professional traders are humans, working on the charts and news for a long time may prove detrimental to trading. While pros continue to put in more effort, prolonged activity only leads to inconsistency.
Institutions advise their traders to take a walk if they are feeling low. Proper sleep and breakfast are recommended before sitting at your desk.
A few examples of professional traders who made mistakes
Before highlighting the trade mistakes of pro traders, let us consider a few instances where top investors had to close their funds or trading accounts due to naive errors:
Bill Hwang. The Korean-born, New York based, Wallstreet trader recently made the headlines when it was reported that he lost $20 billion over two days. He had committed a grave mistake of investing big with money that was borrowed from banks and institutions.
Aman capital. With up to $242 million in managed assets, the fund had to close due to over-leveraged positions resulting in a loss. The investors were left with a loss of 22% in the value of their initial equity.
Pequot capital. An example of a unique failure as the fund manager was following an illegal method known as insider trading. The SEC fined Pequot $23 million back in 2010.
About Forex Copier
Forex Copier is an automated software that helps you copy your trades on the same or different PCs. It has two versions:
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The copy trading software has many valuable features, including lot/risk management, price adjustments, order filtering, tweaking SL/TP, and emergency stops to help you get an easy edge in the industry. It is possible to diversify your trading accounts and brokers by distributing your equity over several portfolios and using the auto trade copier to copy positions from one account to all of the others. You can also choose to sell subscriptions to your signals and EAs to investors worldwide, with or without access to their login credentials.
The scope here is unlimited, as the Forex Copier can help gurus in teaching by sharing their executions. For traders on a losing streak, the mirror trading software offers a reverse mode that turns all incoming buys into sales and vice versa with modifications of the exit and entry points.