From mopping restaurant floors to delivering food, part-time jobs helped me save around $10,000 during college. After graduation, I planned to invest my savings in the financial markets; specifically, the foreign exchange or the forex market.
Even though I barely understood the forex market, its technicalities always fascinated me. I loved reading currency charts and predicting their next moves. And, now that I had the capital, I eagerly learned the technical and fundamental factors of forex trading.
However, I lost half of my savings in the first six months of forex trading. As a beginner, I made some common, yet grave mistakes I didn’t know of. Below, I will explain those mistakes, so if you’re just starting your forex journey, this article may save you from heavy losses.
Trading on an Unreliable Internet Connection:
Be it beginners or seasoned forex traders, everyone understands the volatility of the forex market.
Did you know that the forex market has an average trading volume of $7.51 trillion per day? It’s because major stock markets, commodities such as gold, silver, oil, and currency pairs are listed on the forex market.
Such high volume directly translates to the market’s swings and movements. Even though fundamental and technical factors may help, your trades may still end up in a loss if your internet connection is unreliable.
A spotty internet connection may not be able to catch the real-time movement of the forex market. Technical indicators such as Relative Strength Index (RSI), Volume, Fair-Value Gap (FVG) and more may not produce efficient results on unreliable connection.
As for me, I’ve now switched to AT&T Internet after a few awful experiences with my previous ISP. Now, I can easily open and close trades, monitor charts in real-time, and use multiple data-heavy indicators simultaneously.
Plus, AT&T customer service is always a call away in case I have any queries. So, I recommend trading on a fast and reliable internet connection, so that you don’t bear any unnecessary losses.
Not Setting Stop Loss or Take Profit
Stop Loss (SL) and Take Profit (TP) is one of the key terms every forex trader should understand. If you’re following any expert forex trader, you will never see them trading without setting SL or TP.
Essentially, an SL closes our trade as soon as the market moves away from the predicted zone, in order to minimize losses. On the contrary, TP closes our trade as soon as the market reaches the predicted zone to secure the profit.
As a beginner, I did not set SL or TP on my trades and suffered heavy losses. For instance, some of my profitable trades ended up in a loss because I couldn’t close them on time. And there was no TP to close those trades automatically.
Similarly, my account was liquidated twice as I didn’t set SL to minimize the losses. In short, even if you have $10 equity, it is incredibly important to set SL and TP on every trade to secure consistent profits and minimize losses.
Trusting Market Rumors
As a beginner forex trader, I believe it is easier to be influenced by expert traders, especially when you’re not as good at market analysis.
Frankly speaking, I trusted the market rumors more than my analysis. A few times, the rumors paid off as I was able to make good profits. But most times, I suffered major losses or did not trade and missed the opportunity to make profits.
For decentralized platforms, the forex market may not be regulated or manipulated by a single entity. However, market players with heavy investments may spread rumors about different currency pairs or commodities to control the actions of other forex traders.
Resultantly, market players may make significant profits while traders with smaller portfolios suffer losses. So, in any case, do not trust the market rumors and always have faith in your market analysis.
Refrain From Revenge Trading
Forex traders need to understand that profit and loss are a part of trading. Sometimes, even with top-notch analysis of a commodity or currency pair, your trade might end up in a loss.
I believe no forex trading strategy guarantees 100% results, as multiple factors can impact the market movements and nullify our prediction. And, as important as it is to understand that you may always face loss, it’s equally important to stay away from the market in such situations.
Essentially, when you re-enter the market with high hopes to cover your losses, it’s called revenge trading. Personally, I’ve lost more money in revenge trades because my decision-making abilities and analysis were driven by emotions.
After several bad experiences, I finally understood that after every loss, it’s important to take a step back and analyze your strategy. And only after you thoroughly review your strategy, you should re-enter the market.
Frequently Asked Questions (FAQs)
Is it risky to trade multiple currency pairs simultaneously?
Yes, if you lack technical or fundamental expertise, it is not recommended to trade multiple currency pairs simultaneously.
Can I set SL without a TP on my trades?
Yes, you can set SL without a TP, as it will only close your trade when the market moves away from your predicted zone. However, your trade would not close automatically when the market hits the predicted profit zone as well.
Is revenge trading different from over-trading?
Yes, over-trading occurs when you open multiple positions without a clear strategy. In revenge trading, your trading objectives are to cover your losses that occurred in previous trades.