Forex traders make several mistakes in the course of their careers and while mistakes can be manageable and excusable, the costs can add up and trickle losses that will drain all their hard-earned capital if these happens consistently. The following are three problems that seem to be universal among traders today especially beginners.
#1: Emotional trading
It’s inevitable for any trader to experience a mix of emotions while doing their trades. These range from excitement, apprehension, frustration and anger among others. Greed is perhaps the number one emotion that ruins the trades of most beginners. When the market becomes favorable, a trader may tend to feel overconfident and continue trading mindlessly. Some feel that they need to squeeze every last pip out of a move. Trying to take hold of every last pip before a currency pair turns can set you up to lose the profitable trade that you are looking at.
Solution: Obviously, don’t trade based from your emotions, but from a right application of money management and risk management plan. This is a key parameter in the operation of any system.
#2: Poor or Lack of A Good Risk Management Plan
In order to survive the erratic market, it’s crucial that you manage risks appropriately. You can be a proficient Forex trader and still get your account wiped out without the right risk management plan. Keep in mind that apart from making a profit, your number one job is to protect your capital.
Solution: Use stop loss and take profit orders. Most Forex trading platforms today include these limit orders which will close the trade if the stop loss or take profit level is reached.
#3: Trading with a Low Start-up Capital
While most brokers today allow traders to start with a little amount such as $100, $50 and even $25, this doesn’t mean that you should. Using a small amount of capital maximizes the risks and you will likely be emotional with each swing of the market. Every Forex broker account has a minimum lot size, and every system has a minimum risk, so you need to be sure that your starting capital is enough to cover both these amounts. Otherwise, you’re risking more than you have to and that will almost definitely blow up your account.
Solution: If you are a beginner, at least $1000 is a reasonable amount to start off with – that is if you trade very small and conservatively. Use accounts with micro lots or smaller when trading.