A few weeks back, I kicked off the Intelligent Investor Series as part of my weekly commentaries. Th...
5 Mistakes New Traders Often Make
06/27/2014 9:00 am EST
The phrase “Fools Rush In” should sound familiar to practically everyone, however, according to the staff at FXTM, many new traders seem to forget about this. Here, they point out five mistakes that eager new forex traders often make.
Forex trading requires hard work, dedication, willpower, patience, and many other attributes but many new traders believe they can walk into the game and become profitable straight away.
Here are some of the other things beginner traders usually get wrong:
Aiming for Huge Profits in the First Year of Trading
New traders usually come into the markets with bags of confidence and optimism, which is a good thing. But being overconfident can lead to miserable returns and it’s better to remain realistic about what kind of returns are achievable.
If you are in the camp aiming for a 1% return a day, then you should get real. 1% a day would make you richer than Warren Buffett in a fairly short period of time. Try aiming for 1% a month and you might be able to get to your goal more quickly.
Taking Too Much Risk Because They Know They’re Right
The other problem that new traders face is that they are usually unacquainted with risk-taking and therefore have no idea about proper risk control. They often come up with a trade they are so sure of it that they have no problem putting on a large position, or even an ‘all-in’ position. This type of behavior always ends up causing bankruptcy because unforeseen events, black swan type outcomes, are more frequent than most people realize.
Mixing Trading Capital with Expenses
Most new traders dive into the markets with less than $1000 and attempt to build it up using a trial and error, scattergun approach. This is wrong in two respects.
Firstly, trading funds need to be kept separate in order to facilitate better risk control and money management. It’s not a good idea to keep going into your trading funds to pay your bills or food expenses.
Secondly, trial and error is the worst way to start trading the markets, it’s better to improve your trading education first.
Thinking that Trading Is Easy
If only some traders knew how hard it really is they probably wouldn’t bother getting involved in the first place. In fact, those that think trading is easy normally turn out to be the worst traders.
New traders too often believe that buying low and selling high is all they need to do. They should also consider the cost of trading and realize that they are up against some very sharp competition.
Wanting to Trade for a Living Immediately
New traders often see forex trading as a way out from their unsatisfactory jobs or careers but diving into forex trading full-time is foolhardy. As soon as you have bills to pay, your emotional responses go up a notch and all of a sudden trading becomes much more stressful.
Traders need to take a very gradual approach to going pro and should save up a significant bankroll before doing so.
By the Staff at FXTM
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