Studies show that a large portion of forex traders fail. The problem is that most do not prepare adequately before starting their live trading activity.
You can increase your chances of becoming a successful trader by identifying the mistakes that most traders do and avoiding them. The following are some of the common mistakes that beginner forex traders do and our tips on how to avoid them.
Mistake 1: Not enough forex education
You will never trade successfully unless you invest in education. Many beginners start trading with a gambling mindset. However, successful forex trading requires an understanding of the global markets, trading strategies and technical and fundamental analysis. You need to know how to use financial information resources like Bloomberg or the Financial Times, charts and other tools.
Once you are confident with your knowledge you should test it with the help of the demo account. Demo trading is the best time to test different strategies. You should not start live trading until you identify a trading strategy that you feel comfortable with in the demo environment.
Mistake 2: No risk management plan
Forex trading is a high-risk venture, and it is therefore critical to have a risk management plan that factors in the amount of risk you are willing to take. Once you identify your risk appetite, you should identify trading tools to protect yourself against additional risk.
For example, you can implement a stop-loss to close trades when the prices hit your risk threshold. Likewise, you can have a ‘take-profit’ feature in place to lock in trades when your target price is reached. These are not the only risk management practices you can adopt and before you start trading you need to be aware of all important practices and how to use them to your advantage.
Mistake 3: not sticking to your risk management plan
You can have a trading strategy and a risk management plan, but you will achieve nothing unless you follow them. Remember that forex trading requires high discipline. Traders often ignore their risk plan when chasing losses or when they feel overconfident about a specific trade. You should learn to identify the urge to ignore your risk management plan as an emotional reaction and keep reminding yourself that emotions are the number one cause of wrong decision making in trading.
Mistake 4: Choosing the wrong broker
Most novice traders assume that all brokers are equal. This is not true. There are many factors that can differentiate one broker from the other and choosing the right broker has a huge impact on your success or failure in the trading world.
But if we can think of one factor that is simply crucial to check before choosing a broker it is the license. You should only work with forex brokers like Capex.com who have a license from top regulatory bodies. If a broker is not regulated by one of these bodies then it cannot be trusted and you should not work with them.
It is always good to learn from other people’s mistakes and this is what we have tried to help you do in this article. We do hope that you learned the pits and falls of forex trading and that you will have the patience and discipline to avoid them.
Trading forex, especially with CFDs may involve a high risk and your potential losses when trading CFDs may be substantial.