Experts have noticed that there are many common mistakes in Forex trading. These 5 common Forex mistakes include not starting with enough capital, extending losses, emotional responses, misusing leverage and following the herd.

Forex trading success demands careful attention to detail, a good plan and the wise use of the tools of the trade. Those who fail seem to fall into the same traps. The 5 most common mistakes in Forex trading are not investing enough capital, extending losses, emotional responses, mismanagement of leverage and following the herd.

It Takes Money to Make Money

A typical Forex contract requires a solid investment to gain from the minor movement of pips. Forex brokers will know how much you have in your account. They are more likely to extend margin or leverage if you have more money. You need to invest enough money to ensure that returns are significant.

Extending Losses

Making money in Forex is dependent upon making the proper predictions for price movements. Successful investors will develop a theory of how a price movement will occur given certain factors and look for developing trends that fit the pattern. Timing is essential.

When the plan goes awry, a wise trader will have a Stop Loss in place to prevent further losses. Becoming wedded to a losing position is a common error. It is important to conserve your capital and not throw good money after bad.

Emotional Responses

The Forex market has no feelings. Traders can get too greedy when they are making money and too fearful when they are losing money. An objective statistical approach is necessary. The best is to look for a percentage of profit or losses, then exit the trade when you reach that threshold.

Another problem is believing that the next trade will be like the last one. If you have been successful with a former trade, you will need to make sure that you are rational in assessing the next trade properly. If you lost money previously, you should not be too risky in trying to make it all back with the next trade.

Misusing Leverage

Leverage is essential to translating small pip movements into real Forex profits. Properly managing leverage is an important part of the process in turning Forex trading into a career. The more leverage you have, the more upside and downside risk you incur.

Each trade might require a different level of leverage to be established. Leverage management combines risk assessment and capital control in determining the highest potential for solid Forex profits. It is always wise to keep a solid capital reserve for Margin Calls.

Understanding the Herd Mentality

The goal of successful Forex traders is to understand how the herd will react to data, news and developments in economic cycles. The wealthy are one step of the herd, positioning themselves in lucrative assets before the herd arrives and before the herd sells. This is a secret to successful Forex trading.