Of all of the new people that decide to give forex trading a shot, most of them will end up totally wiping out their account balance within a few months.
In fact, if you are reading this article right now, there is a good chance that you too began your forex trading career with a string of losing trades, followed by frustration and dismay.
The fact of the matter is, most new forex traders all make the same mistakes, and for that reason they all give up the sum of their trading account back to the market.
Today I will outline three of the most prevalent mistakes that novice forex traders make, so that you can make sure to catch yourself if you are doing these things and begin to create successful trading habits that will lead to forex trading success.
The first mistake has to do with the way that you perceive forex trading, and consequently the money that they use to fund their account. Many losing traders begin with the flawed perception that forex trading is just a simple way that they can make money from home (usually as a result of misleading advertising). Yes, this can be a home business (and a pretty profitable one to boot), but this does not mean that it is necessarily easy or that you are guaranteed to make money.
The mistake that these traders are making is to NOT fund their account with ‘risk capital.’
It is always important to fund your live trading account with risk capital, or money that would not put a dent in your finances if you lost it. But as a result of this ‘easy profit’ mentality, these of people will fund their live trading accounts with money that they cannot afford to lose, thereby making sure that their trading experience is a highly emotional one.
This segues nicely into the second mistake, which is to become emotionally attached to your trades. Emotional trading is the fastest way to failure, yet it is not hard to understand why so many traders feel emotional when they trade the forex for the first time.
To most, the concept of being able to grow your money just by correctly pressing the ‘buy’ and ‘sell’ buttons on their desktop is an entirely new experience, and for that reason they will feel angry or sad when they lose money, and overjoyed when they make money. They look at it more as gambling or a game of luck rather than an investment that takes time and effort to grow.
The third mistake that novice forex traders make is actually a result of being highly emotional with their trades, and that is TRADING ON IMPULSE. This is bad, bad, bad!
First off, it is important to establish a trading strategy with certain rules that you follow down to a tee, so that you only enter or exit the market when there is a verifiable reason to do so.
When you place a trade on a whim, you might feel confident for the first 30 seconds or so, but after a while you will start to question yourself and wonder why you are even in the market in the first place.
So to recap, the three big mistakes that novice forex traders make is to fund their trading account with money they cannot afford to lose, get emotionally attached to their trades, and enter the market on impulse and deviate from their trading strategy rules.
What you will want to do if you want to be in the 10% or fewer of forex traders that actually make significant profit is to fund your account with risk capital, work on becoming emotionally detached from your trading, and never deviate from your set trading plan or trade on a whim.
Trading with micro lots is a lot more fun than demo trading and a good bridge towards bigger trades because the fact that you are using ‘real’ money helps you to start to understand and control the emotional side of trading.