Every year, more and more people are drawn to the foreign exchange (forex) markets, excited by the massive daily turnover that reaches into the trillions of dollars. There are plenty of lucrative opportunities for those who are willing to develop their skills and stick to their trading plans. But many potential forex careers stumble right from the start because new traders often jump in too quickly, losing both their money and their enthusiasm.
Typically, beginners are impatient. They want to start earning right away, so they begin trading without fully understanding the market, hoping to learn as they go. This rushed approach often leads to mistakes that could have been avoided if they had taken the time to learn from those who came before them. Today’s post aims to point out some common mistakes that newbies make, with the hope of helping fresh traders avoid them on their path to profitable trading.
**Trading vs Gambling**
The main goal in forex trading is to achieve consistent and predictable earnings each week. This is nearly impossible if a trader treats the currency markets like a casino rather than a financial marketplace. While there is always some uncertainty in trading, the objective should be to make informed and educated decisions that result in profits more often than not. One key piece of advice for beginners is to practice on a demo account until they can reliably make steady earnings in simulated trading before moving on to a micro account.
**The Double-edged Sword of Leverage**
Leverage is perhaps the biggest reason why accounts get wiped out. It allows novice traders to make more money even with a small account balance, but it can also lead to huge losses if the market moves against them. It’s a double-edged sword that can provide benefits but also cause devastation.
**Emotional Trading**
Every trading decision should be based on the best available information at the time. New traders often fall into the trap of getting emotionally attached to a trade, and fail to make the smart choice when it’s time to exit. This typically happens when a promising trade starts to go bad, leading the trader to hold on in hopes of a rebound, which can result in even bigger losses. This brings us to the concept of using a stop loss.
**The Essential Stop Loss**
Using a stop loss is a common practice among experienced and intermediate traders, and beginners who want to survive long enough to gain more experience should adopt it too. A stop loss helps prevent bigger losses that come from trying to outlast the market and also frees up capital for better trading opportunities.
Just like in any other area of life, learning from the mistakes of others can give you a significant advantage. This holds true for forex trading as well. Those who take the time to learn the trade before jumping in tend to perform better in the forex markets.