The 5 Most Common Mistakes Made by Beginner Forex Traders

12 January 2022, 07:50

Being unprepared

As with any endeavour, being prepared is key to success. One of the most important things for a beginner trader is having sufficient knowledge and understand about the market. Thankfully, there are plenty of resources online, like PU Prime’s own trading tutorials and webinars, that can help you get started. Take the time to understand the lingo, workings, and strategies for Forex trading; and try your hand at a demo account before embarking on trading.

Not having a plan

As the saying goes: fail to plan, and you plan to fail. While a beginner might luck out by trading on instinct and whims, occurrences like that are rare. Having a clearly defined plan with proper entry and exit conditions is important to trading with confidence, and avoiding making emotional decisions. At the same time, be flexible enough to react as the market situation changes – if a trading strategy is not working out, then perhaps it’s time to move on to something else.

Not having discipline

Discipline is perhaps the most important attribute to cultivate, especially in a scenario where greed or bias can often obscure the larger picture. This means having the discipline to stick to the stop-losses and profit-taking of your trading plan. Holding on to losses for too long in the hopes that trends might reverse might result in losing even more of your capital. No strategy works 100% of the time, treat it as a life lesson and move on.

Part of discipline is also only taking risks that one can afford. Allocating a consistent, fractional amount of capital on each trade will prevent emotional or “gut feeling” decisions like taking on an abnormally large position because you feel positive after a string of wins.

Finally, put in the work. Putting in the effort to follow the news and events; record your activity and review your trades (MT4 (link) has a pretty useful tool to do just that); and doing back testing with your strategy can all have significant impact on your trades.

Thinking that the “ultimate” trading strategy exists

Even just having a strategy is not enough. Some beginner traders will constantly chase for the perfect trading strategy that they think will make them large amounts of money. No such thing exists – not for the institutions, and certainly not for the retail trader. Instead, pick one that suits your personality and available resources. This includes how much risk you are able to assume, the amount of capital you have, and how much attention you can spare to monitor your trades.

Having Unrealistic Expectations

There’s no free lunch in the world. As a beginner trader, the potential returns from volatility, like during the announcement of high-impact news, might seem tempting. But volatility means that the market might move either way. Avoid trading during or right before these announcements like central bank meetings or employment reports. Instead, monitor the situation and wait until the situation calms down a little. Forex trading is not a way to make quick and easy money consistently (nothing is). Like running a business, it’s something that requires work, patience and practice in order to have a payoff.