By: Jon Provencher

Learning about the common mistakes inexperienced foreign currency (Forex) traders make will help you to develop your skills and chances of being successful. Here are some common mistakes and assumptions inexperienced traders make:

- Misplacing Stops
Stops are essential to avoid bad losses, however poorly placed stops can be equally as bad. Before placing a trade the trader should consider the risk to reward ratio for the trade. The stop needs to be set with the traders cash management in mind and should not be too close or too far away from the price. Traders should also consider moving their stop as the trade goes in their favor to lock in profits and lower potential losses.

- Abusing Leverage
With Forex brokers providing up to 400:1 leverage, it's easy for inexperienced traders to get carried away with the dream of making fast profits. When traders use a high amount of leverage the profits can be amazing, but when the trade doesn't work out the result can be catastrophic. Traders should always compute the dollar value of the risk they are taking for each trade and ensure that this is suitable for their investment balance. Accomplished traders rarely risk more than 2-3% of their investment balance on any one trade.

- Placing Technical's On A Pedestal
Technical indicators are good tools that help traders to make decisions. However making decisions for trades based solely on what the technical indicators are telling us can result in large losses. By considering fundamental data together with technical data you will have a much better chance at being successful.

- Day Trading
There are successful day traders out there. However, for inexperienced traders, trading with the longer term trend will be easier and have a better chance of making profits. Longer duration trades allow the position more time to move in your favor, especially if the market is volatile.

- Blindly Following A System
There are many Forex systems out there that promise miraculous results. But if you begin trading one of these systems with no proof that it actually works you could find your investment balance quickly reduced to 0. If you want to use a Forex trading method, a sensible approach is to back-test and forward test it using software or on paper prior to putting any real money at risk.

- Underestimating Emotions
Emotions can have a enormous impact on your Forex trading. Keeping a trade diary will help you to appreciate how your emotions are impacting on your trading, you can then learn to use them to your advantage.

- I Back-tested It So It Must Work
An error traders make is to assume a back-tested method will continue to work. Forex markets are constantly changing and are effected by global and political events. Before you start to use a back-tested method you should consider if it reasonable to assume that the market conditions the method has been tested on are probable to be similar to market conditions in the future.

We hope that this article has helped you to improve your Forex trading. For more articles on Forex training, please visit our site.