If you have recently started to trade the forex markets and are starting to figure out what all those forex signals mean, you may feel as if you are gingerly tiptoeing your way through a minefield. Of course, you want every one of your trades to be profitable (or at least you want your winning trades to more than offset your losing ones), but that's easier said than done!

So here is a brief checklist of what not to do. These are common mistakes that novice traders make with forex trade signals.

Following Too Many Signals

This is one of the most common mistakes among novice traders. It's understandable. You're new to trading so you want to try various methods out in order to see what works. Nothing wrong with that, it's good to experiment a little in order to find your way. And it's always wise to test any strategies out on paper before doing it for real.

The problem arises when you start trading using real money, and you are still looking at lots of (often conflicting) signals. Let's face it, there are multiple trading packages out there, many of which are free to use, so it's tempting to look at the signals generated by a bunch of different ones and to mix and match.

But that is a dangerous route to follow, as you will end up chasing your own tail with no clear indication of when to enter and exit a trade.

Not Following Signals Closely Enough

This is also a very common mistake. Many novice traders lose money because they don't have the discipline to follow the clear signals their trading system is giving them. For example, you might have a long position in Japanese Yen that is showing a profit. Your system flashes up a signal that you should close out the position and take the profit, but you want to wait a little longer in the hope that the position becomes even more profitable. But then the market turns, the price comes down and all the potential profits you had have now disappeared.

Or here's another example. You open a position, the price moves against you and the system gives you a signal to close out the position for a small loss. But you hang on, in the hope that the market will turn and your losing position turns into a winning one. Wrong! The market continues moving against you and what could have been just a small loss is now a substantial one.

The lesson here? If you are using a system, stick to the signals it gives you!

Not Linking Forex Signals to Preferred Trading Strategy and Risk Outlook

There is no such thing as a universal forex signal. What might be a buy signal for one trader could very well be a sell signal for another, if the first trader has a short-term trading outlook and the second is following long-term trends for example.

Whatever your risk profile and trading outlook, make sure you follow appropriate signals for that style of trading.

Not Differentiating Between Entry Signals and Exit Signals

A signal to buy a particular currency against another could be to either open a position (an entry signal) or to close it (an exit signal). If you are not differentiating between the two, you are opening yourself up to problems.

Say for example the signal is to sell Japanese Yen to close a position because the system calculates that an upward trend has ended. If you had a long position open and you now close it, you can realise your profits. If you sell to open a short position however, you are making a mistake because the system has not actually predicted a downward trend, it has only predicted the end of the upward trend. See the difference?

Over Trading

Finally, don't make the mistake of over-trading. If you trade on every little movement in the market, the chances are that your trading costs will outweigh any profits that you do actually make. So fine-tune your trading software to generate your forex signals in such a way that you trade as regularly as you need to but not too much.

If you avoid these five mistakes, you should be on the way to profitable forex trading. Good luck!