There are plenty of mistakes new traders make and they tend to repeat the same mistakes over and over again. This does not only hurt their progress as forex traders, but it also reduces their profitability. There is a growing number of new traders who could increase their profits and operate their portfolio much better, but making these five mistakes limits their success.
Unfortunately with the increase of popularity of forex trading too many rush into trading and do not take the proper time to learn the basics. Many think they can rush the learning process or skip right to the earning part of forex trading.
More and more new traders try to find answers to their questions in forex forums around the internet and while there are some hidden gems in those forums most of the advice given is terrible advice. New traders try to educate other new traders on how to trade or those who have repeatedly failed give out suggestions.
Here are 5 mistakes to avoid as a forex trader:
You can’t learn how to trade in a demo account – This is probably the biggest mistakes new traders make. It is impossible to learn how to trade in a demo account no matter what you read online from other traders. You can only learn how to trade by trading and since no trading takes place in a demo account you are not able to learn how to trade or gain any trading experience. Those traders who want to learn how to trade do so in a live account.
You need to trade in the proper account type – Most traders flock to standard accounts, but they do not have the required trading capital to operate their account properly there. In case you have less than $10,000 to trade with you should open a mini-account and trade your way up.
Understand that a stop loss order is used to close a trade for a profit – Another great misconception of new traders is that a stop loss order is used to close a trade for a loss which is incorrect and only practiced by new traders. Successful as well as professional traders understand that a stop loss order is used to close a trade for a profit.
Leverage does not cause you to lose your account – Plenty of bad advice online claims that leverage is bad for your account. This has even spread as high as government regulatory bodies in the US where there is now a cap on leverage. Leverage is not bad, but using it without proper risk management is. As long as you commit to your risk management the amount of leverage will never cause you to lose more than you should.
Risk management is vital – This goes above and beyond everything else. You need to practice proper risk management in order to maintain trading. It does not matter if your leverage is 1:1 and you trade only 0.01 lots in a mini-account funded with $1,000. Without proper risk management you can face a complete loss over time. Make sure you implement risk management from the start and execute it properly.