By Kathleen Brooks, Brian Dolan

These “beginner” trading mistakes are made by everyone — from total newcomers to grizzled forex market veterans. No matter how long you’ve been trading, you’re bound to experience lapses in trading discipline, whether they’re brought on by unusual market developments or emotional extremes.

The key is to develop an intuitive understanding of the major pitfalls of trading, so that you can recognize early on if you’re letting your discipline slip. If you start to see any of the following errors in your own trading, it’s probably a good idea to square up, step back from the market, and refocus your concentration and energies on the basic trading rules.

  • Running losers, cutting winners: By far the most common trading mistake is holding on to losing positions for too long and taking profit on winning trades too soon. By cutting winners too early, you may not make as much — but then again, you literally can’t go broke taking profit. That said, you will deplete your trading capital if you let losses run too long.

    The key to limiting losses is to follow a risk-aware trading plan that always has a stop-loss order and to stick to it. No one is right all the time, so the sooner you’re able to accept small losses as part of everyday trading, the sooner you’ll be able to refocus on spotting and trading winning strategies.

  • Trading without a plan: Opening up a trade without a concrete plan is like asking the market to take your money. If the market moves against you, when will you cut your losses? If the market moves in your favor, when will you take profit? If you haven’t determined these levels in advance, why would you suddenly come up with them when you’re caught up in the emotions of a live position?

    Resist the urge to trade spontaneously based on your instincts alone without a clearly defined risk-management plan. If you have a strong view, go with it, but do the legwork in advance so you have a workable trading plan that specifies where to enter and where to exit — both stop-loss and take-profit.

    Be aware of the increased risk of trading around important news and data releases. Study economic and event calendars to identify future event risks, and factor them into your trading plan. That may mean stepping out of the market in advance of such events.

  • Trading without a stop loss: Trading without a stop loss is a recipe for disaster. It’s how small, manageable losses become devastating wipeouts. Trading without a stop loss is the same as saying, “I know I’m going to be right — it’s just a matter of time.” That may be so — but it may take a lot longer than your margin collateral can support.

    Using stop-loss orders is part of a well-conceived trading plan that has specific expectations based on your research and analysis. The stop loss is where your trade strategy is invalidated.

  • Moving stop-loss orders: Moving your stop-loss order to avoid being stopped out is almost the same as trading without a stop loss in the first place. Worse, it reveals a lack of trading discipline and opens a slippery slope to major losses. If you don’t want to take a relatively small loss based on your original stop loss, why would you want to take an even larger loss after you’ve moved your stop? If you’re like most people, you won’t — and you’ll keep moving your stop to avoid taking an ever-larger loss until your margin runs out.

    Move your stop loss only in the direction of a winning trade to lock in profits, and never move your stop in the direction of a losing position.

  • Overtrading: Overtrading comes in two main forms:

    • Trading too often in the market: Trading too often in the market suggests that there is always something going on and that you always know what it is. If you always have a position open, you’re constantly exposed to market risk. But the essence of disciplined trading is minimizing your exposure to unnecessary market risk. Instead, focus on trade opportunities where you think you’ve got an edge, and apply a disciplined trade strategy to them.

    • Trading too many positions at once: Trading too many positions at once also suggests that you’re able to spot multiple trade opportunities and exploit them simultaneously. More likely, you’re throwing darts at the board, hoping something sticks. Trading too many positions also eats up your available margin collateral, reducing your cushion against adverse market movements.

    Be careful about trade duplication and overlapping positions — a long USD/CHF position can be the same as a short EUR/USD or GBP/USD (all long USD versus Europe), while a short EUR/USD and a long EUR/JPY position nets out to be the same as being long USD/JPY.

  • Overleveraging: Overleveraging is trading too large a position size relative to your available margin. Even a small market move against you can be enough to cause an overleveraged position to be liquidated for insufficient margin.

    This common no-no is made more tempting by the generous leverage ratios available with some online forex brokers. Just because they offer you 100:1 or 200:1 leverage does not mean you have to use it all. Don’t base your position size on your maximum available position. Instead, base your position size on trade-specific factors such as proximity to technical levels or your confidence in the trade setup/signal.

  • Failing to adapt to changing market conditions: Market conditions are always changing, which means your trading approach needs to be flexible, too. Trends give way to consolidation ranges, and breakouts from ranges may lead to new trends. Stay flexible with your trading approach by first evaluating overall market conditions in terms of trends or ranges. If a trending move is under way, using a range-trading style won’t work, just as a trend-following approach will fail in a range-bound market. Use technical analysis to highlight whether range or trending conditions prevail.

  • Being unaware of news and data events: Even if you’re a dyed-in-the-wool technical trader, you need to be aware of what’s going on and what’s coming up in the fundamental world. You may see a great trade setup in AUD/USD, for instance, but the Australian trade balance report in a few hours could blow it out of the water.

    Make data/event calendar reading a part of your daily and weekly trading routine. The market throws enough curveballs with unscheduled developments, so make sure you at least have a handle on what’s coming up. A forward-looking mindset also allows you to anticipate potential data outcomes and market reactions and to factor them into your trading plan.

  • Trading defensively: No trader wins all the time, and every trader has experienced losing streaks. After a series of losses, you may find yourself trading too defensively, focusing more on avoiding losses than spotting winning trades. At those times, it’s best to step back from the market, look at what went wrong with your earlier trades, and refocus your energies until you feel confident enough to start spotting opportunities again.

  • Keeping realistic expectations: Face it: You’re not going to retire based on any single trade. The key is to hit singles and stay in the game. Be realistic when setting the parameters of your trading plans by looking at recent market reactions and average trading ranges. Avoid holding out for perfection — if the market has achieved 80 percent of your expected scenario, you can’t go wrong locking in some profits, at the minimum.