Each and every year more people flock to the forex markets to try their hand at grabbing a piece of the literally trillions of dollars which make up the daily turnover of the global forex markets. And there are profits to be had, for those willing to put in the work building their skills and who have the willpower to stick to the plan. Yet most forex careers end before they even really begin, as would be traders try to run before they can walk and end up killing their whole account balance and their motivation in the process.
It is very common to see new traders not spend the time required learning how to trade before trying to earn their big chunk of the market, and instead just jumping in hoping to learn along the way. The problem with this is that you will invariably make a lot of mistakes that other people have made before (and written about), meaning you lose the chance to learn from and avoid their mistakes. Today’s article is going to point out a few of the more common beginner mistakes, in the hope of helping a new trader avoid them while on the path to profitable trading.
Gambling Instead of Trading
The aim of the game in forex trading is to get to the point where you are earning predictable and consistent profits with each week you are trading. That is impossible while a trader is treating the currency markets like a casino rather than a market. Make no mistake, there is always a certain amount of chance involved in each trade, however the aim should be to make a very educated guess which will pay off more often than not. So make sure you learn before you try to earn, make use of a demo account (example) and practice till you can make consistent profit in paper trading, then move up to a micro account.
Leverage kills more accounts than any other factor we might discuss, but leverage also helps new traders earn more while their account is still small. Leverage is referred to as the double edged sword for that exact reason, in that one way it helps, while the other way it can kill your account if the market even moves against you just a little.
Every trade should be an educated decision based on the best information available to you at the time of opening the trade, as discussed earlier anything else is gambling rather than trading. The other way beginners get caught though is getting emotionally invested in a trade and not pulling out when their rational mind tells them it is time. This can often happen when a trade you were sure about swings in the opposite direction, and you decide to keep the trade open in the hope of waiting it out till you at least reach parity. Which then leaves you open to losing even more money on a trade that you would have to admit is not going as you planned. Which brings us to the next point, the stop loss.
Not Using a Stop Loss
Experienced traders use a stop loss, intermediate traders use a stop loss, beginner traders who want to have a chance at surviving long enough to become intermediate, they use a stop loss. A stop loss will help avoid the aforementioned situation whereby greater losses are incurred just by trying to wait the market out. It will also free up your capital to wait for a better trade opportunity to come along.
As with all things in life, taking the opportunity to learn from the mistakes of others gives you a big head start. Forex trading is no different, those who take the time to learn the trade before they trade, those are the ones who will really make it in the forex markets.