Starting out in trading is definitely an exciting experience but you must be very careful not to make these dangerous mistakes that most beginners make.
While there are many dangerous mistakes for forex newbies to make, I’ve highlighted the two that are subtle enough not to be noticed but can have a big impact on your trading career.
Take a look and see if you’re on the way to making these mistakes or if you’ve experienced any of these:
1. Undercapitalization
Insufficient initial capital is the first mistake by beginners, and it usually ends up killing them.
I’ve seen traders, including myself, blow their whole trading account during the first month or week. Heck, I blew one of my accounts in thirty minutes!
Your trading capital is lost even before you have the time to properly learn to trade.
This is what usually happens to new traders:
They don’t have sufficient trading knowledge and experience.
They are not familiar with risk management principles.
They underestimate the risks involved in their setups, which leads to impulsive and often expensive execution.
Another habit I’ve seen among trading newbies is using tight stops on small lots and even smaller trading accounts.
Using small trading lots is not a death knell for newbies’ accounts but using small and tight stops might be.
By using short and tight stops, you increase your chances that the stops will be triggered more frequently and your total loss will consist of many small losses.
Your trading account should be as large as possible in order to correspond with market conditions and provide the necessary flexibility in making trade decisions. Position size matters, remember?
The size of your trading account is another tool in your trading quiver.
Like any business, you have to make sure you adequately funded. Don’t try to lower risk by only depositing a portion of your available trading capital.
Fund yourself right but use proper money and risk management!
2. Overtrading
Overtrading is when you (hoping to receive the maximum possible profit) open a huge position consisting of multiple lots.
Considering the typical market activity, it’s easy to lose half or even all your trading capital with this.
This problem is sometimes directly connected to insufficient trading capital.
But it’s more likely due to the trader lacking knowledge of money management principles, which means lack of competence to control their trading capital properly.
Your trading capital is used to earn money. You should treat each dollar is like a newborn baby.
Your first and foremost responsibility is to protect it. If you lose it, you have less to help you earn money.
Have you ever made any of these mistakes? Please share your experience in the comments below. I’m sure we’d all be interested in possibly learning from each other. I know I would!
