Now before you raise your hand up in protest, let’s set one thing clear. It’s not that we don’t want you to become Forex traders. It’s just that we want you to become Forex traders the right way. You need to have realistic expectations, so that you can anticipate and act accordingly.
It is a well-known statistics that most new Forex traders lose money in the beginning. Because of this, a lot of them tend to jump to the conclusion that Forex trading is a losing proposition, or that it’s not the right fit for them. But nothing can be farther from the truth. You can make money with Forex trading, even as a newbie. But you have to avoid making rookie mistakes.
So let’s examine the top 3 reasons why newbies lose a lot in forex trading:
1. You’re new to the game.That’s right: you lose money as a new trader simply because you’re a new trader. It’s that simple.
This is not some sort of circular reasoning or any Zen philosophy. It’s simply a normal phenomenon that happens with just about any human activity. If you are new to something, then you’ll suck at it at first. Whether it’s sports, video games, poker, carpentry, chess, driving, or mathematics—it’s all the same. There are of course exceptions, but this is the rule you have to accept.
And there is also a corollary to this rule that you need to remember: you can get better over time. In fact, theoretically you can be the best there ever was. When you consider just about everyone who’s considered among the best, (like Tiger Woods, Peyton Manning, Roger Federer, Serena Williams, LeBron James), they all started as beginners who didn’t really know what they were doing.
So how did they become the best? They stuck to the game, and they practiced and played all the time. That’s all there is to it.
That’s why you really, really, need to spend a lot of time using your Forex demo account. And you have to treat it seriously. When you make a mistake on the demo account, you don’t just shrug it off. It’s nota video game. You have to review what happened so you understand your mistake.
You have to spend some time with the demo account, before you start the real thing. But by treating the demo as the real thing, you can then gain the necessary experience so that your losses as a newbie would not be as great as it would have been.
2. You don’t have a business plan. Sometimes new Forex traders think that this is a job. But it’s not, because you’re not really earning a salary from it. It’s a business, because you have to invest time, effort, and money, and still your profits are not assured. And like any new business you will need a business plan.
Your business plan will consist of two parts. The first part is the strategic outlook regarding your overall Forex trading strategy. What are the currency pairs you want to focus on? What’s the level of leverage are you comfortable with? What kind of analysis method are you contemplating? How much time per day and per week do you intend to devote to Forex trading? What kind of realistic ROI do you anticipate?
Then you also need a plan for every trade you make. You should have a plan that tells you when to enter a trade. When you are right in your call, you need to know when you plan to close your position and get your profits. When it seems like you are wrong in your call, you have to set a limit in which you get out of the trade to minimize your losses.
3. You let your emotions take over.What’s the point of having a plan when you suddenly change everything because of how you feel? Remember, when you made you plans, your head was clear and you were feeling calm and cool. But when you’re in a trade, it’s normal to feel emotions. But you must never let them take charge and make your decisions for you.
Being emotional is one of the most common paths to ruin, even for experienced Forex traders. That’s because it’s very easy to call it a gut feeling than to recognize that greed or fear is actually making them do things. So to avoid this issue, you need to develop the discipline to stick to your plan.
Once you have developed a sound trading plan that works as well as the fortitude to stick to it, you may then be able to call yourself an experienced trader.