Friday, June 3, 2011

Top 6 Mistakes New Forex Traders Make

Some mistakes made by Forex traders are almost universal. It seems that there are a handful of them that almost all traders will make when they are still starting out their trading careers. Some of the more common ones are below:

Being underfunded

One of the most common issues is a sever lack of trading capital. If you have a smaller account, you might find it tough to pull the trigger on a trade, because you are too worried about losing what little capital you have. You should have enough capital in the account that you can survive a string of losses, because they can and do happen. You need to accept that losing trades happen to everyone, and you don’t want to be in a situation where a few losses can wipe out what trading capital you do have.

Unrealistic expectations

Another common ailment of new traders is simply being unrealistic of what is going to happen. Most of us start out with dreams of sitting on a beach, opening our laptop, hitting a few keys on the keyboard, and suddenly making a few thousand dollars. It only takes a couple of trades to see how unlikely that is.

The truth is that you are entering a business. If you had $1,000 to open a business with, how much would you expect to make on that business right away? Would it be reasonable for you to expect to make a consistent living from that small sum? Since you undoubtedly answered “No”, you really shouldn’t expect to make a killing off that $1,000 trading Forex either.

It will take time to build your balance up, allowing you to trade larger amounts, and make larger profits. With patience and a little common sense, you can get to the point where your profits truly matter.

“Picking it up along the way.”

Seriously, this one is very dangerous. Trading is a skill, and as such, should be treated like one. Most doctors didn’t just “pick it up”, but most Forex traders seem to think they can. You are competing against some of the brightest minds in the world. While you certainly can come out ahead, you need to know what you are doing before you do it! This is just common sense.

Through study, and demo accounts, you can get the experience needed to compete with the larger firms around the world. You do have certain advantages that they don’t, like being able to jump in and out of the market with ease for example. You can learn to use your experience to make money consistently, but it takes time.


While this is similar to having an underfunded account, there are still a large amount of traders that insist on using all of the leverage they can. The lure of large gains is simply too much for them to ignore, but they don’t seem to think about the losses waiting to happen.

Being far too overconfident

While being confident isn’t a bad thing, it can go too far. Maybe your last trade made a large amount for you. If that’s the case, you should be happy, but it doesn’t make you bulletproof. Some traders will take a string of wins as a signal to start trading with large positions.

This can really hurt you, because one large trade that goes wrong can wipe out several of your normal sized wins. A loss can come at any time, and successful traders will actually trades like it is likely.

Having no plan

A successful forex trader will have a trading plan. Period. You cannot just trade ‘off the cuff” and expect to make reasonable decisions. A trading system as part of your plan can go a long, long way towards becoming profitable. You need to know what to do in various market conditions. A trading plan will help you with that.

1 comment:

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