Three Critical Mistakes New Forex Traders Make

When first embarking on your journey into the forex world you’re quickly faced with the reality that making a quick buck isn’t going to be as easy as you initially thought. There are several mistakes that new traders make without even knowing they’re making them, and below, I’m going to address the three most common. For this article I’m going to assume that new traders do indeed already have a trading plan.

1. Not using a stop

I have always found it tough to understand why this is so common because it seems so obvious. Yet, time and time again, new traders experience HUGE losses in a single trade on the forex market, simply because they either don’t put a stop loss in, or as the market approaches their stop loss, they adjust it to give their trade ‘more space’. When losses are a part of any strategy you should be happy to have your stop loss hit, because the market has proven that despite entering according to your forex trading plan, you were wrong this time.

Embrace your stop and your balance will thank you later. You’ll never be right 100% of the time, so when you set your stop, stick to it. That way, you can live to trade another day and recover the loss much easier through future profitable trades.

2. Misunderstanding or underestimating risk 

Risk is without a doubt a key component of forex trading. But failing to know how much you can lose on a trade if you’re wrong is completely unacceptable because it’s something that you’re very able to control!

All too often, newbies think in terms of risking ‘x’ amount of pips. Now, what’s wrong with that, you ask? Pips don’t define the percentage of your account that’s at risk. When thinking in terms of ‘percent risked’, it doesn’t matter how many pips you’re risking because you can scale your lot size accordingly based on your % risk.

3. Overtrading 

One of the hardest mistakes to avoid when starting out as a forex trader is over trading. You’ve just learnt your new skill or system and now you want to put it to the test. That, combined with the fact that you’re sitting in front of your trading platform for hours a day means you should be seeing positive results, right? Sadly, it doesn’t always work like that. Many beginners, after staring at the screen long enough, think they’re seeing setups, whether their system gives them one or not.

Also, too often after a brief run of success, new traders will think they’ve suddenly figured it out and end up taking more trades on poorer signals. Not only does this hurt your bottom line but it’s psychologically damaging. One of the most common things an experienced trader will tell you to focus on is learning how to sit tight. As the legendary Jesse Livermore puts it: “After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: it never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!”