Every year, more and more individuals are drawn to the foreign exchange (forex) markets, enticed by their substantial daily turnover in the trillions of dollars. Remarkably lucrative opportunities abound for those determined enough to hone their skills and adhere to their trading plans. Yet, many promising forex careers falter at the starting line, as inexperienced traders dive in headfirst, depleting their account balance and, often, their enthusiasm.
Generally, newbie traders lack the patience to learn before they earn, jumping straight into trading, and hoping to acquire knowledge along the way. This hasty approach leads to unnecessary and avoidable mistakes already committed and documented by others. Today’s post will highlight some of these common beginner errors with the aim to steer fresh traders clear of them on their journey to profitable trading.
Trading vs Gambling
The primary goal in forex trading is to achieve steady and predictable earnings each week. This is virtually unachievable when a trader treats the currency markets like a casino instead of a marketplace. Although every trade contains a level of uncertainty, the intention should be to make educated and informed decisions that are profitable more often than not. Key advice for beginners is to use a demo account to practice until they can confidently generate steady earnings in mock trading before moving on to a micro account.
The Double-edged Sword of Leverage
Arguably, leverage is the leading account destroyer, yet it provides an avenue for novice traders to earn more while their accounts are still small. The double-edged sword metaphor describes the precarious nature of leverage; it can benefit and devastate traders if the market shifts against them even slightly.
Emotional Trading
Every trading decision should be an informed one, relying on the best available information at the moment of initiating the trade. New traders often fall into the trap of emotionally investing in a trade, ignoring their better judgment when it’s time to exit. Usually, this scenario unfolds when an initially promising trade swings adversely, pushing the trader to hold on, hoping for a recovery, opening themselves up to the risk of even greater losses. This brings us to using a stop loss.
The Essential Stop loss
Experienced and intermediate traders consistently use a stop loss, and it is a practice that beginners keen on surviving long enough to obtain intermediate status should adopt too. A stop loss prevents the situation where bigger losses accrue from trying to outwait the market. It also frees up your capital for a more favorable trade opportunity.
Just as in every facet of life, learning from the mistakes of others gives you a significant lead. The same principle applies to Forex trading. Those who take the time to learn the trade before they dive in, tend to rise to the top in the Forex markets.
