According to many statistics, the success rate of beginners in foreign exchange trading is unfortunately rather low. We will show you why this is so and how you can easily avoid the biggest mistakes in forex trading here.
Why exactly do most traders make losses when trading Forex?
Although this trend is improving over time, it is already too late for many beginners in Forex trading. Many traders give up trading after a few losses because they feel that forex trading is just not right for them. This is not necessarily the case. Below we describe the most common mistakes that beginners have made when trading Forex (via mt4 trading system Etc) and ways to avoid them.
Mistake # 1 – lack of experience
As with any other method, you learn new things over time in Forex trading and gain important experience over time. Learning foreign exchange, however, differs from learning a new instrument in that you don’t risk losing your fortune learning the differences between the two major and minor chords. However, the learning effect of forex trading through trial and error on a live account is relatively small and therefore not a good prerequisite for becoming a good forex trader.
Most forex brokers offer free demo versions of their trading platform where you can trade under real conditions and test trading strategies without jeopardizing your real capital.
On demo accounts, you can see how markets react to economic influences, news, political developments or chart patterns without having to use real capital. However, if you really want to learn from trading demo accounts, you have to take it seriously and pretend that play money is your real capital. This means, for example, that you will not be able to enter the market with 10 lots just because you have 50,000 in your demo account. Otherwise, you won’t get much out of demo trading. Take the opportunity to become familiar with trading demo accounts and only go live when you feel confident enough to do so.
Mistake # 2 – Inappropriate Expectations
First of all, you have to forget that you become a millionaire overnight with Forex trading, as some dubious Forex signalers suggest. Certainly there are people who have become rich in foreign exchange trading in a short time. However, this is usually associated with luck and / or a very high risk. There are also people who get rich by selling houses or cars. In either case, you don’t usually get rich overnight, but it takes years to gain enough experience and skills to be successful in your profession. This is no different in forex trading.
If you, as a trader, manage not to lose your entire deposit within the first few months, as is unfortunately the case with many traders, you will most likely be able to learn what it takes to be a successful Forex trader.
In other words:
Don’t quit your job yet. It will take some time before you learn how to successfully participate in Forex trading.
Mistake # 3 – lack of a solid trading strategy
In addition to the often too high expectations of the risks and the time required to be successful Forex tradingThe most common mistake that beginners make is trading without a specific forex trading strategy. There are two aspects of a plan in daily trading. First, a general trading goal, and second, a plan for every trade you enter.
The overall goal should include:
- Determine the markets you want to trade in
- Define the time horizon in which you want to trade the markets.
- Determine the position sizes with which you want to trade (money / risk management)
In addition, your overall goal should include a realistic return that you want to achieve over a defined period of time. In addition to your overall goal, your plan should also include exit strategies for each trade you make. The exit strategy determines the upper and lower limits, i. H. The entrances and exits of each trade. These exit strategies are also known as order management.
In other words:
For each trade you have to define where you want to close the position and take your profits (take profit order) or where you want to close the position to limit your losses (stop loss order).
You will receive more information about stop loss and take profit orders later.
Mistake # 4 – lack of discipline
A plan only makes sense if you stick to it. While this is certainly one of the most difficult points, it is also one of the most important if you intend to be successful in forex trading. For example, if you make a trade and the market violates you, it is only human to question your trading decision. If your position is in profit and your take profit mark is reached, it is easy to try not to close the position as even higher profits (i.e. FOMO) are expected despite the predefined mark. On the other hand, if the trade goes against the trader and the fixed stop-loss mark is reached, it is hoped that the turning point will come immediately and the position will return to profit. Here, too, you are tempted not to close the position as planned and let the loss continue.
Now ask yourself the following:
Does one of the two scenarios make sense? Before you started trading, you had a plan. Based on this plan, you set the markers for stop loss and profit taking. Have market conditions changed so much since trading opened that you throw your full rules overboard and go to war without a plan? Or are your decisions based here more on emotions in forex trading than on a thorough analysis?
That is why it is so important to have a plan and discipline to stick to! A plan and discipline allow them not to incorporate emotions that are inevitable when trading Forex with real capital in their trading decisions.
This does not mean that a trading plan cannot be changed or reconsidered. On the other hand. It’s even a good idea to review your overall goals every few months or more often if necessary. Of course, it may be necessary to adjust or even discard your strategy because, for example, market conditions have changed. However, this should be the exception rather than the rule.
It can happen that in times of extreme market movements, no plan or strategy brings positive results. During these phases, the best strategy is to act only after you have developed a good plan for these market phases or when the situation has returned to normal. Never fall into the “I have to act today” trap. They cannot and must not always be on the market. Sometimes the best plan is to just stay in cash and not act.
Mistake # 5 – Non-compliance with stop loss and take profit marks
If you open a trade after a market order, leave it open and give no further instructions on how to close the order (stop loss or profit taking), you are playing with the total value of your account. Therefore, you should ALWAYS work with stop-loss orders on all open positions to protect your capital.
For example, if you have a long position in EUR / USD, you can place a stop loss order on the position that will automatically sell your position if the price falls below the level you have defined. This way, you can accurately determine the risk that you are ready to make a trade, even when you are not at the computer.
Take-profit orders work similarly to stop-loss orders. With a Take Profit order, you can set the price at which your position will be automatically sold to secure your profits.
In other words:
All you have to do is set a stop loss marker for each trade to limit your risk in that trade and a take profit marker to take your profits with you. Once this is done, your broker will automatically close the position of one of the two brands without you having to do anything.
Mistake # 6 – Lever or position that is too large
Depending on your experience, high leverage can be a powerful tool to increase your profits. However, since leverage works in both directions, your account may also expire. Therefore, you should be fully aware of the effects of leverage before trading with a real money account. Risk a maximum of 1% or less of your total capital per trade. No more. The less experience you have and the larger your positions on your total capital, the more likely you are to throw your plan overboard due to emotion and to wipe out your account due to mistakes. Even small but increasing profits lead to long-term success.
Mistake # 7 – Too many open positions at the same time
Fighter jet pilots call this situation “helmet fire”. It refers to a situation where too much is happening around you to be able to react quickly enough. In the cockpit of a fighter jet, this can cost your life. This can destroy your forex account. So trade as few positions as possible at the same time in order to keep an overview and react quickly enough.
Mistake # 8 – Lose positions held too long
One of the things that distinguishes experienced forex traders from beginners is the ability to determine which losing position is unlikely to make a profit. Unlike beginners, who hope that trade will continue to grow, disciplined traders close such positions much faster, limiting their losses much more effectively.
This is another reason why setting stop loss and take profit values is so important. If you set a stop-loss mark when you start trading, you protect your capital and do not have to keep an eye on the trade. When the stop loss order is reached and executed, you only lose what you wanted to risk from the start and protect most of your account. With the remaining capital, you can now open new orders that will hopefully lead to better results.
Sometimes you just have to learn the hard way. You pay for it, learn from it and move on.
Mistake No. 9 – Pay attention to the spread
The spread – d. H. The difference between bid and ask prices – is an important factor for profitable trading in forex trading. The spread affects the profitability of every trade. The less spread you pay, the faster and higher your winning position. You should be aware that the spread for many brokers is variable and can be widened to different degrees depending on the different phases of the market. For example, the spread is typically widened before news releases such as labor market numbers, interest rate decisions, or outside of the market, when liquidity is low. Sometimes the spread can mean the difference between a profitable and an unprofitable trade.
However, this does not mean that the CFD broker with the lowest spreads is automatically the best for you. Some brokers advertise with low spreads, but only make them available to their customers in certain situations or at certain times. You can find information and reviews about forex brokers in the forex broker comparison.
Mistake # 10 – focuses on big profits and not on money management
In other words, greed. This error is simply explained. The most important factor in currency trading is protecting your own capital. This is the only way you can be successful with long-term currency trading. This is a simple calculation game. You have to limit your losses and maximize your profits. Even with a hit rate of 50%, you can be successful if you limit your losses and your profits are higher than your losses. To ensure this, disciplined money management is essential.
Good money management follows the rules described above.
Greed here is logically counterproductive and lets you throw all the rules overboard and in the long run will inevitably lead to the bankruptcy of your account.
Reservation Emptor. Risk management in the first place, profits in the second place. Trade only the money you can afford to lose.
Information on learning modules in retail, stopping losses and determining positions can be found in our modules # 3M: Money Management. Download our book # 10Steps to a Richer Life for more investment options and general financial knowledge.
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