Hello everyone! Today I will try to answer a simple, but at the same time, relevant question – why most beginners in trading fail. I’ll go over a few of the most common beginner mistakes in detail and give you helpful tips on how to avoid them.
On my blog, I have already touched on the topic of mistakes made by beginners, at the end of this post I will definitely provide links to articles. Today we will talk in more detail about the errors, both previously mentioned by me and not. So, let’s begin.
Misconception about the Forex market
When people learn about the Forex market, their pupils turn into dollar signs.
The Internet is replete with advertisements for various advisors, strategies, indicators – claiming that they will help you make a profit overnight. And for this you just need to buy their product, replenish the account and cut the loot.
Yeah, you buy an advisor, turn it on and go to bed, thinking that in the morning there will be millions on your account. And in the morning you wake up “fucking ….” half of the deposit is not.
People are so zombified, they think that Forex will quickly solve all their financial problems, and when they open a trading account they already dream of buying their own island.
Be aware that the Forex world is filled with marketing scams giving you false claims about easy money. Internet marketers don’t sleep, they are very smart people – they know how to play on people’s desire to get rich quick and know how to tempt you into buying their product.
Conclusion: In the Forex market, you cannot get rich in just one night, and quitting your main job in the morning is a utopia. Beware of systems, advisors, indicators that promise quick earnings. If you want to become a professional trader, you must get serious about your business.
Unpreparedness of beginners
Probably the most common mistake is that newbies are not prepared. Having no plan, no understanding of how the market works, but in the same place, only the dollar signs are burning in the eyes, of course, the chances of success will be negligible.
With this approach, passion prevails! Trades will take place only on your intuition, and depend on your emotions, any sequence, there is no system! Accordingly, it will be problematic to maintain a stable profit.
Becoming a successful trader is like starting your own business. You will not start your own business, while knowing nothing and not understanding about it. Or you will act like, “I’m going to sell this crap. What is this? And hell knows. But what about market research? Yes FSUs … “. If so, the market will chew you up and spit you out before you can say anything.
You have to do your homework first, study everything, plan and be prepared for the worst-case scenario. Smart traders always have a plan for bad outcomes and allocate risk correctly. Read my article in detail “How to organize your work on Forex?“.
Conclusion: Forex market should be considered as a new start-up. Invest your time in training, learn as much as possible about the Forex market before diving into it.
Emotions set the tone for trading
It doesn’t matter if you are a beginner or a seasoned trader, emotions such as greed, fear, vengefulness, overconfidence, impatience and euphoria need to be kept in check.
Emotions are related to our daily life, but if you let them influence you while trading, it can lead to a quick drain of your deposit.
Want to get rich fast ?! Then go ahead, such a greedy and aggressive attitude will quickly discourage the desire to trade. One has only to make a mistake with entering the market once and a wave of negative emotions may begin, which will develop into large consequences, and you will be carried out of the market.
Believe me, every successful trader has experienced the above emotions on their way to becoming a trader, and some, like me, still experience them, just learned to control and suppress them.
Even as an experienced trader, my overwhelming self-confidence let me down. A couple of years ago I had a long period without negative weeks (more than 30 weeks in a row I worked in a plus), each week brought in a profit of 4-10%.
There were practically no negative trades, if they were, they were overlapped by profitable ones. That played a cruel joke, I relaxed, became self-confident “I am the king of Forex”, any deal opened by me must necessarily close with a plus, and when a series of unprofitable deals began, I was knocked out of the rut, I was not ready for this, psychologically, since and technically. The deposit at that moment sank well (lost more than $ 15,000), the lesson was learned. Nothing teaches, and does not sober, as their own mistakes.
Conclusion: the most dangerous thing about trading is yourself. 90% of the time you are not engaged in bargaining, but fighting with yourself. Learn to control and suppress impulsive expressions of emotion, and irrational thinking. Reach the highest level of discipline, otherwise all your achieved successes can evaporate overnight.
Frequent market entries
The most common newbie misconception, “more deals = more money,” stems from our natural gut intuition “more work = more results,” “who doesn’t work, doesn’t eat.” This is what we were taught from childhood, they constantly hammered it into our heads and naturally, we think that these postulates should be applied in Forex trading.
For this reason, many novice traders work on minute timeframes using trading systems with high entry frequencies. Systems of this kind have two main problems. Firstly, they use a short time frame, they do not take into account the intraday price noise, therefore, it is very difficult to get a clean reading of the chart and make accurate technical analysis. Secondly, a very narrow stop loss, the position does not have the ability to “breathe”, if the price swings a little, you will simply be carried out of the market.
The smaller the timeframe, the smaller the stop, in relation to the intraday noise of the price. It will be taken out of the market often, but are you emotionally ready for this ?!
The fast pace of trading can provoke strong emotions – frustration, anger, greed, a desire for revenge. It usually starts with excitement, turning into greed, overconfidence or despair.
Basically, excessive entries into the market, or, more simply, beginners indulge in pipsing, it is their lot to take a couple of pips from the market and get out, while full of joy. When a position is in good profit, it creates a feeling of euphoria, which plays with you, tempts, forcing you to trade even more.
Remember that the more often you enter the market, the more you risk, each trade is determined by the risk to your deposit.
If you had $ 1 million in your account, would you risk it by trading on minute charts, piping the price ?!
Pipsing and scalping requires constant monitoring of the price, this makes you sit in front of the monitor screen day and night, watching the price so as not to miss a signal for a couple of pips.
You spend a huge amount of time on this, it is much better to trade on high timeframes, open a position and leave to go about your business, enjoy life, while your trading is running in the background.
Conclusion: refrain from frequent entries into the market, do not pips or scalp the price, especially for beginners. The higher the time frame, the more profitable the trade in the long term. Many traders follow the philosophy “the more trades they open, the more profit they get,” but, unfortunately, the opposite is usually the case.
Inability and unwillingness to manage risks (Money management)
Many novice traders rely on flair, intuition, and often change their minds when entering the market. They risk too much on one trade, probably at this time they got a flash of insight, and they do not risk enough inheriting, a kind of not constant, ragged trade.
How can you build a system if you constantly change the lot from deal to deal ?!
Understanding the risk to reward ratio is key when building a trading system. The mistake newbies make is that they don’t think about risk. Since the target is small, then it will be easy to catch it, while applying a wide stop loss, relying on your instinct, not the math.
Suppose a trader risks $ 100 with a target of $ 20, which means that if a deal is knocked out by stop loss, then the next 5 trades should be successful, and if the next one is knocked out again by stop loss, already 10 trades in a row should be profitable to compensate for losses from two unprofitable transactions. It doesn’t seem to you that this is some kind of wrong mathematics, there is no logic.
Experienced traders use a profit to loss ratio of at least 2: 1 and the risk per trade is no more than 2%. In this case, even if 50% of transactions are unprofitable, the trader will still be in a good plus.
Lack of correct and competent money management will inevitably lead to a drain on the deposit. Risk management is an important component when building a trading strategy.
Conclusion: devote more time to money management when analyzing your strategy. Your trading plan should be designed so that profitable trades overlap losing ones. Know that you can have the best trading strategy in the world, but if you don’t know how to properly manage your risks, you will lose in the long run.
I have a separate post on Mani’s blog about management, for a more detailed acquaintance, go to link…
Perhaps for today we will finish analyzing the mistakes of beginners, so the post turned out to be too long, which is usually not typical for me. I hope this article was helpful for you.
Read the next batch of newbie mistakes in second part of the article… Goodbye.
Best regards, Evgeny Bokhach
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