Common Mistakes That Make Beginners Lose Money In Forex Trading
Trading in the volatile and fast-moving forex market can be a challenging endeavour for all types of traders even if they have years of experience and expertise in trading. The difficulty level of trading does vary depending on the knowledge and skills that you possess. Thus, trading in the forex market is harder for a beginner without any prior experience or in-depth market knowledge. Because of this, newbie traders end up losing a lot of money in the trading process due to some common mistakes. But when you are aware of these mistakes, you can avoid them as a beginner and save yourself from unwanted losses.
In this blog, I will tell you about the most common mistakes that can lead to losses in forex trading, so that you can mark a successful beginning to your trading journey by doing it right.
- Trading with very little capital
New traders are often told to start small to minimise the risk but trading is not the best profession for someone who doesn’t have enough money. You can start with a small amount of capital but you should not expect to make huge profits with it. Many beginners enter the market with a misconception that forex trading can give quick profits without much effort and they also use excess leverage to maximise the gains while trading with a smaller amount of capital.
But if you don’t have sufficient funds and trade with too much leverage, you run the risk of a margin call as the account balance falls below the minimum level. This can be avoided if you fund your account based on the margin requirement while also keeping some free margin for safety. The margin requirement can be determined by using a margin calculator.
- Poor risk management
The second mistake that leads to losses in forex trading is poor risk management and this happens because beginners tend to underestimate the risk. They don’t assess their risk tolerance in advance and they don’t pay attention to limiting the potential losses by minimising the exposure to risk. New traders need to be extra cautious while trading and only take risks when they are comfortable with it.
You should always set a stop loss and limit the risk per trade by choosing an ideal trade size. You should also use a currency calculator to convert the currency value in your chosen currency while trading with pairs that have a different base currency. This way, you can estimate the risk in your own currency and plan the trade well.
- Overtrading
Trading in the forex market is always subject to the risk of losses and when you start overtrading, the result will be bigger losses. Overtrading is a major mistake that leads to the downfall of many new traders who break the rules by placing too many trades. They think that entering more trades will bring more profits but they always get disappointing results when they surpass the limit. Hence, you need to decide the maximum number of trades that you will enter in a day or week and stick to it irrespective of the result.
- Getting Addicted to Trading
Trading can also be very addictive either due to greed as you want to earn more or simply because of the excitement and thrill that is brought by the risk and uncertainty. But when you become addicted to trading, you end up becoming a gambler and such an approach will only lead to huge losses for a beginner. Even experienced traders end up blowing up their accounts when they give into the addiction. This addiction is also a cause for overtrading.
- Having Unrealistic Expectations
The amount of profits you expect to earn as a trader should not be too high as that can also lead to losses as you end up taking excess risk for reaching the target that you have set for yourself. The potential gains of a trade can be calculated by entering the price levels and trade size into a profit calculator. Such tools help you to set attainable and realistic goals based on the real-time exchange rates and number of pips that you are planning to catch from the trade. You need to consider the risk as it is always connected with the rewards.
- Making Decisions That Are Driven by Emotions
Another mistake that leads to beginners losing money in forex trading is making important trading decisions when you are overpowered by emotions. It is normal to feel stressed or experience fear when you are risking real money in the trading process. But you need to control these emotions and only focus on logic to decide the best course of action. In order to avoid the mistake of emotional trading, beginners need to learn about trading psychology in detail.
- Being indecisive
One major reason why many beginners lose money in forex trading is struggling to make a timely decision. Being indecisive can be just as bad as making a wrong decision and it can be even worse if you are unable to decide in the middle of a trade. So, you need to develop your decision-making skills as a trader.
- Learning with Trial and Error
There are many methods to learn trading from scratch but trial and error will not be the best approach for a beginner as you are going to make a lot of mistakes in the initial period. The trial and error method can still be applied but it has to be a demo account where you trade with virtual funds without any risk. You should not try a trial-and-error method on a live account as you might end up losing all your hard-earned money. Even manual errors in calculation can lead to trading pitfalls, but you can avoid manual errors by bringing trading calculators into use, as they provide accurate results within seconds.
- Not Accepting Your Mistakes
The worst mistake you can make as a trader is constantly blaming the market for every loss that you encounter in trading. Some beginners will never admit when they are wrong and this inability to accept the mistakes stops you from correcting them. You will keep repeating the same mistakes and thus you will not be able to make any progress as a trader. You will keep losing money thinking it’s just your bad luck or the market being rigged when it is not the case. Identifying your mistakes can be empowering as they help you learn and improve your skills as a trader.
- Being Careless with Leverage
A beginner should never be careless while trading with leverage and this mistake can also lead to losses in the forex market where you get a high amount of leverage from brokers. You should not use leverage beyond a certain limit as it increases the risk of loss along with the potential profits. Leverage amplifies the trade size allowing you to make more profits with a smaller amount of trading capital. But the potential losses will be just as big and a new trader should not use leverage when they are not ready to deal with the risk.
Summary
To sum it up, it is completely normal to lose some money as a new trader in the forex market. But the mistakes that I have mentioned above need to be avoided to limit your potential losses as a beginner while you are learning.
