1) Using Extreme Leverage – Leverage in the Forex market could extend up to a proportion of 1:500. Although leverage provides an opportunity to trade more money on the market keeping risk capital at the minimum, which leads to a massive gain, it can also amplify the potential to incur significant losses, if the market starts moving in an unintended direction. Using too much leverage could result in large losses even if there is only a small move against the trader’s position.
2) Over Trading –Trying to grab too many trading opportunities using extreme leverage increases the chances of making a mistake, that will resulting an eventual loss. Over trading can lead to poorly executed trades and gives less time to react, especially when trading losses are piling up.
3) Not Having a Trading Plan –Having a pre-determined trading plan is an important key to success and if followed strictly, it can help in managing the risk involved with forex trading. Trading without any specific plan is like ‘Planning to Fail’.
4) Using Automated Trading Software – Many traders, especially beginners, tend to search for software, which aims at perfectly predicting future trends. There are a lot of companies earning money by selling such software, but in reality they would never give their secrets away, if the software really worked.
5) Trading Against The Trend – Short-term trading movements, which could be random in nature, do not indicate the overall trend. Hence trying to pick the tops and bottoms or trading short-term movements as a long-term strategy in anticipation of a reversal is trading against the trend. You can lose your entire equity with counter-trend trading. Remember “Trend is your friend until the end when it bends” and always let momentum guide your trades.
6) Trading Without Training or Experience – The most effective way to become a successful trader is to learn trading skills by practicing trading strategies on a demo account. Demo trading is recommended to get familiar with trading and to understand the functionality of the trading platform.Trading with real money with little or no experience (without understanding what it is like to trade live) could increase the probability of committing mistakes, resulting in an eventual loss of money.