My pro tips to avoid you from committing the classic mistakes of beginners and gaining on forex.
In recent years, I have worked for several forex brokers and this is where I found recurring mistakes in new forex traders. Here are my findings and my instructions to avoid making these sometimes fatal mistakes and win in the currency market. Also, find our comparative forex broker to trade forex.
12 TIPS TO WIN ON THE FOREX
Avoid the following 12 errors:
Neglecting to learn
Forex trading is a profession in itself, and as for all trades in the world, it must first learn. Many beginners think that it is enough to open a trading account and to read some daily analyzes to have in the hands the keys to the success. Unfortunately, it’s not that simple.
A classic mistakes of beginners that I have often noticed is the desire to start quickly, without having taken the trouble to train or, at least, to learn.
To remedy this, you will find many specialized books and training in trading, essential step for all those wishing to trade on the forex.
There are certain rules and knowledge that can only be acquired by training with a professional. To neglect this stage is like going to go around the world with a flat tire. We can move a little, but it will not last long.
To have personally followed, I recommend the formation of Philippe Lhermie. You will learn about the functioning of the foreign exchange market and the mechanisms that move the currencies.
Set unrealistic goals
Most of the common classic mistakes of beginners due to lack of market knowledge, beginners often seek unrealistic and unachievable performance. A beginner must set a single goal: do not lose.
Then, if you make 30% per year, you will be more successful than Warren Buffet who achieves an average performance of 23% per year.
What makes the results of the billionaire cited above is that it owes its popularity more the stability of its results than to their level of performance, since it obtained an average of 23% years.
I do not think we would talk about Warren Buffet today if he had targeted or announced a monthly performance of 20% over the last three months.
So at first, try not to lose. And, if you get there, try to target for a small goal,
And you can reach it, then you can try to target for a bigger performance. Success is in the regularity.
Use too much leverage
The leverage multiples offered by forex brokers are up to 500 for 1!
The use of leverage is certainly one of the most interesting aspects of the currency market, but it is necessary to know how to use it sparingly.
I have sometimes heard that 50: 1 or 100: 1 was not enough because other brokers offer more.
Even if there’s a theory that having more cartridges in your rifle is better, remember that using a 10: 1 leverage exposes your account to a 15-fold risk of daily loss. % if volatility reaches 1.5% in the day.
At this rate, four or five consecutive losing trades can wipe out your entire trading account. It is therefore strongly recommended not to use leverage when starting.
After a few months of practice and greater ease, it is advisable not to exceed 5: 1 leverage, which seems to me already huge.
Want to invest in all currency pairs
Diversification can be a good thing when you’re a conservative investor. I trying to saying goes, do not put all your eggs in one basket.
But when one starts trading in forex, it is impossible to be able to correctly track all currency pairs and news related to each of them. Each currency pair reacts according to its own parameters.
In the same scenario, two pairs of currencies will not behave in the same way. To avoid getting lost, it’s best to start by focusing on one and only one currency pair.
Do not put stop loss
Placing a stop loss correctly is not easy, especially for beginners.
As a result, even if the novice trader has taken a position in the good sense of the market, he will lose money on the execution of a misplaced stop loss. The logical next step for the beginner is to abandon the use of the stop loss.
But sooner or later, trading without stop loss will probably generate a significant loss. This is a very common classic mistakes of beginners that cause the closure of many accounts by the margin call. It is therefore imperative to put a stop loss on each position entered on the market.
If you do not know how to place a stop loss, there is a lot of training (free and paid) to help you better understand how to do it.
Do not apply the rules of money management
Some beginners are not shocked by jeopardizing 15 or 20% of the capital on a transaction.
The master rule of money management is simple. You should never risk more than 1 or 2% of your account on a transaction.
We can have an excellent trading strategy, but if we do not respect the rules of prudence in risk management, we increase exponentially the risk of bankruptcy.
Make small losses often, and a big profit once in a while is a good vision of what someone should do to properly manage their capital.
Do not cut the losses
A common classic mistakes of beginners is to accumulate losing positions without wanting to cut them. Because to cut a loss is to admit that we were wrong. And that is not easy.
I often hear that as long as the position is open the loss does not exist (the famous saying “not sold not lost” ). Yet a latent loss is beautiful and a very real loss at the moment t.
It is usually best to cut a losing position, and the sooner it is, the better. Because the greater the loss, the more difficult it will be to close the deal.
If this can help you, remember that: one does not intervene on the forex to be right but to earn money.
To go down
This is one of the most common classic mistakes of beginners and one of the worst things to do. It may seem logical when the market drops sharply to double its position to lower the cost price.
There is a certain mathematical logic in this reasoning, and yet, the trader who goes down average commits two dollars: he hopes that an unfavorable situation becomes favorable again, and he will think that a price level that has been reached in the past will inevitably be reached again soon.
Put yourself in the place of those who bought USD at 1.60 thinking (like a lot then) that the next goal would be at 1.80 then 2.00. Have they averaged down to 1.55? Now, look at a USD curve.
The 1.60 level may be reached in the future, but when? Will traders have enough margin to support such losses?
Cut the profits too early
After a period of loss, and with all the stress that this can generate, some will cut their profit too soon, as small as it is.
As soon as the balance is positive, the transaction will be closed.
So we see novice traders let losses run of $ 800 and as soon as the position becomes a winner of $ 5, they close the transaction, relieved not to be in a negative situation. We must try to win at least 3 to 2 risky.
Neglecting the impact of the spread
We can think that 1 pip more or less on the spread will not change anything.
This may be true on one or two transactions.
But you spend two transactions a day on a year, the difference will be 520 pips or about 26% if you are used to using a 5: 1 leverage.
A strategy can, therefore, generate profits with a spread of 1.5 but be a loser with a spread of 2.5.
Do not neglect any detail.
When trading, you sometimes have to be patient because you have to look for the right opportunity, wait for the market conditions to be favorable to the strategy you apply, and so on.
However, will often make the classic mistakes of beginners taking a position without respecting the plans or strategies previously put in place because it is more exciting to be in the market than to follow its evolution.
Be strict with yourself in respect of your trading plan.
Look for miracle methods
There is, unfortunately, no miracle method or infallible martingale.
Many beginners get into the market looking for a way to generate profits with ease, from home, and without effort.
While it is obviously possible to perform very well in the currency market, there is no easy way to make money on the financial markets, in the same way, that the golden egg hen ‘does not exist.
I hope that these few lines can help you to start properly, and avoid making the classic mistakes of beginners , but rest assured if you make some mistakes because it is also part of learning.