While it is easy to get into the forex market, it is not as easy to master it. Many beginners tend to make a lot of mistakes as they try to establish a foothold on the market. A lot of newcomers tend to get discouraged even before they have succeeded in building up a foundation. Most of the
mistakes that beginners make are not very complex though. With a keen focus, they can be avoided. The following is a highlight of the key mistakes beginner traders make and which should be avoided.
1. Making Big Risks
A lot of people tend to venture into the forex market thinking that it is some sort of gamble. They risk too much money and they end up getting burnt. Such beginners also tend to have too much optimism in the market. All these are mistakes that end up consuming them. You should never risk too much of your money in the forex market. This market, unlike many others, is very volatile and risky. Like other markets though, the forex market can be beaten with a smart strategy.
2. Failing to Utilize Longer Time Frames
Many beginners also tend to focus too much on the short term trade. This is because of the general perception that day trading is all about going for the short term trades. While forex trading is indeed largely beneficial for short time spans, it is not a wise move to ignore the longer time frames. These time frames tend to give a better picture of uptrends. The hourly and daily charts are specifically great when it comes to showing the trends. Traders who focus too much on the minute-based charts, therefore, end up missing important data.
3. Choosing the Wrong Platform
Another mistake that traders often make is choosing the wrong platform. Forex trading is a difficult affair when you don’t have the right trading tools. A platform is a crucial part of your success in the trade. As a beginner, you need a solid platform that has news, educational information, different charts, and all the tools required for analysis. Metatrader 4 is the most commonly used forex trading platform. In order to use the platform properly though, you need to go through a
MetaTrader 4 guide to understand it. After all, every
beginner should ensure that learning is the most essential part of their daily trade.
4. Making Emotional Judgments
It is estimated
that 80% of all day traders exit the market within two years. The reason for this is mostly down to lack of logic while trading. Many traders tend to get carried away by the prospects of the forex market such that they forget the trading
business is a profession like any other. Some traders also tend to focus too much on the money aspect rather than the skill market. Unfortunately, trading without the right skills is a recipe for failure. Every trader needs to be well educated about the market. With the right education, the importance of pragmatism is understood better.
5. Trading Without Risk Management Tools
Many beginners also tend to venture into the market without a proper acknowledgment of the risks in the market. The forex market is one of the riskiest in the business world. There is high leverage offered to traders and the risks are also exponential. This is why proper training on risk management is required. There are many different tools available for traders to use to manage their risk. Take Profit and Stop Loss strategies are the most commonly used tools to alleviate risks. Beginners, however, tend to invest without taking into account the usage of such tools. This leaves them at high risks and they end up losing money. Experts recommend a
3:1 reward-to-risk ratio when trading. In order to succeed in the trade, you need to use as many risk management tools as possible.
Conclusion
The forex market is one of the easiest to enter. This does not mean that you should enter it as soon as you can though. It is important to consider getting proper training in order to avoid the common mistakes listed above. Getting acquainted with the mistakes is the first step of knowing exactly how to conduct yourself while trading.
