In this article, we will discuss the 2 most common and dangerous mistakes forex traders do:
– Excessive trading
Lack of sufficient capital is the first of the two mistakes forex traders do that eventually kills their account.
We saw the traders that lost all their money for a month or even a week. A friend of ours managed to lose his whole deposit for just 30 minutes!
- Money usually is lost before the trader learns to trade.
- This usually happens to all newcomers in the Forex market.
- They do not have enough knowledge and experience.
- They do not know what risk control and money management rules are.
Many novice traders understand that trading is quite dangerous, but they are not able to adequately perceive and evaluate the risks. As a result, incorrect actions lead to irreversible consequences.
Usually the market gurus advise to start trading the minimum position size in order to minimize potential losses.
Then, they also advise that once you learn it will be possible to gradually increase the size of the position in one trade. We think that this is not quite the right approach. More precisely, this is disregarding the possibility of loss of the capital of many novice traders.
Undercapitalization – Case Study
Let’s agree that it turns out somehow not logical – a novice trader trades with a small position with a very small stop-loss in order to learn how to trade and how to increase the size of the position and put a bigger stop-loss.
Actually, the problem is different – the small amount of deposit makes you take more risks, so you can make more money. Therefore, we can conclude that a small deposit increases your risk.
Also, a small stop loss increases the chances that the price will hit it more often, which will eventually result in a large loss, consisting of many small trades.
Therefore, you need to have enough money to be sure that you can make flexible decisions during the trade.
As in any other businesses, you should have enough money. Enough money and the right approach to managing capital. That’s the key to success!
An indisputable fact is that novice traders open too many trades.
Excessive trading also happens when you are hoping to increase profits, open an excessively large position with many lots.
It’s not a secret that with an unfavorable outcome, you can lose half or maybe even all of your trading capital.
This problem is very often associated with the one we mentioned earlier – not enough funds on the account.
But, most often, a trader simply does not have enough knowledge in the field of money management and he cannot properly control his trading capital.
Conclusion and recommendations
To conclude, those are the most common mistakes forex traders do. Your trading capital is a tool for making money. You need to be very careful with it. It is extremely important to learn to manage your funds efficiently.
Your first and most important duty is to protect it. If you lose your trading capital, you cannot earn a living. Many times you may be tempted to open large positions and earn more but the reality is that in that way you can easily lose your money.