Do you know that many traders keep losing money just because they don’t realize the seven common trading mistakes?
Just understanding one of the seven and correcting them can bring a change in your trading performance. So imagine how much you can achieve by understanding all these seven. It can do wonders!
Every Forex expert was once a beginner. When you begin your trading, it is natural to have a lot of misconceptions. You are wrong about many things before you can finally get them right. Are you aware of the common mistakes that you are making?
What you are going to read now is very important. After reading, you may realize the actual reasons why things are not working out for you.
More than 90% of new traders are misinformed about many things related to trading. Most of the people end up blowing at least one or two accounts before they begin to make profits consistently.
The mistakes that newbie traders make are common. Let us see some of the most common Forex newbie mistakes in this post.
1. Poor risk management
A lot of new traders never care to learn risk management. They usually trade high lot sizes thinking that higher lot sizes will get them more profit.
But they completely forget that they would also lose much with high trading volumes. Because you are risking too much!
Risk management is very important in Forex. It is recommended to not to risk more than 2% of your available balance at any point in time. That means, in a $10,000 account, you cannot risk more than $200 at the same time.
So, your position size matters a lot. If you choose high position sizes without understanding the risk involved, you will blow up your account very quickly.
Always calculate your lot size based on your available balance. This will ensure that you sustain your account without blowing it up.
2. Low Capital
Forex is a business. The more money you invest, the more money you can earn. People who are making thousands of dollars in this business are able to do so because of the high capital that they have invested.
These days many brokers allow you to open a real account with a minimum deposit as low as $50. But can you really make money with a $50 account?
If the account is too small, then you won’t have leeway in lot sizing. Because even the lowest lot size of 0.01 will be too risky.
If you have more capital, you can risk more and also earn more. So, accounts with $100 or $200 are as good as demo accounts. If you really want to make a reasonable amount of money in Forex, then it is recommended to start with at least $1,000.
In fact, the suggested capital by experts is $10,000, if you want to make enough money to make a living. But if you are a part-time trader and have less amount to invest, you should at least try a deposit of $1000.
3. Lack of education
Another mistake that many Forex traders make is not spending enough time in learning. Many Forex traders just take a crash course to learn Forex and start trading right away. This is a huge mistake.
if you really want to succeed in Forex trading, then you need to have a strong foundation. Take your time and learn all the basics. There is no hurry to make money.
It is recommended to spend at least 3-6 months in learning Forex. Take it slowly and understand the important concepts. Be familiar with Forex lingo, basic economic and technical indicators, general behavior of important currency pairs, etc.
A complete education in Forex will ensure that you have sufficient knowledge to trade. You will also have more confidence and clarity after that.
Demo trading is also a part of Forex education. So make sure that you practice well in a demo account before going live. Demo accounts give you a chance to practice without risking anything. So it offers you a perfect, risk-free way to practice as much as you want.
New traders tend to overtrade. Since they are new, they are over-excited about trading. So they tend to force trades when no opportunity is available in the market.
But quality trade setups take time to materialize. You need to wait for the right moment. In Forex, less is more. When you place too many trades, you will also end up choosing trades that are less accurate. This will affect the overall accuracy of your trading every day.
Instead, if you are being very careful and selective when choosing trade setups, the number of trades will be less but the accuracy will be higher.
There are many experienced traders who only take 2-6 trades per month. They only take those trades which have a high probability of winning. So they wait for the right moment instead of chasing the market.
So make sure that you do not chase the market. If you do not find any good trading set up today, it is perfectly alright. By not taking a forced trade, you may avoid an unnecessary loss.
5. Having unrealistic expectations
Many new traders approach Forex as if it is a get rich quick scheme. They don’t know how much they can expect to earn in a month. But often they dream about making millions.
Forex trading is certainly not an easy way to become rich. It is just like any other business. So you need to know what you can expect with your given capital, skillset and working hours.
In fact, the first time you start trading Forex, do not focus on how much you can earn. You may hardly see any profit for the first few months. So, keep your expectations low.
When you expect too much, there will be a lot of disappointment upon failure. That will make you depressed and lose confidence. So, don’t expect to make a profit right from the first month. It may take a few months for you to start to make profits consistently.
6. Poor emotional management
It is human to have emotions. But sometimes emotions take full control of ourselves and influence the way we think.
It happens a lot in Forex trading. Because in Forex trading, losing is considered as a part of the game.
For a new trader, every Forex loss may be discouraging and depressing. Emotions such as greed and fear can make you take wrong decisions.
For example, being over greedy may make you to risk way too much money. On the other hand, fear can stop you from taking a good trade. If you are bored, you may tend to overtrade. You can apply the same for a variety of emotions that you may go through while trading.
So, good emotional intelligence is required for success in Forex. It is very important to learn to manage your emotions if you want to become a successful trader.
7. Trading like a gambler
There is a huge difference between trading and gambling. Both are certainly not the same thing!
Gambling doesn’t require education, analysis or planning. It is purely based on luck. So you don’t have to learn or think to play in a casino. You will never find a book that teaches you how to gamble better.
But luck can’t help you much when it comes to trading. Trading is not the same as flipping a coin and hoping to get heads or tails. You may be able to get a good profit out of sheer luck in one or two trades. But it will not last.
One of the biggest trading mistakes is to trade the Forex like a gambler. When you place a trade, make sure that you know why you are placing the trade. It should be based on a solid trading plan and a good trading strategy.