The best way to understand what Forex is and how it works is to know the most common rookie mistakes that every beginner who ventures into the Forex market makes, almost always leading you to lose your initial capital.
On the contrary, those who know how Forex works, the professional traders, take advantage of their knowledge to create profits and multiply their capital.
Do you know why professional traders always win at the expense of rookie traders?
Because they have a system of rules that works and they have the discipline to follow it.
Can a rookie do the same?
Of course, a beginner can create his or her own set of rules and can learn to have the discipline to follow them.
The first rookie mistake is a lack of necessary knowledge.
You can’t become a pilot after just reading the instruction on how to use the plane, can you? When trading, the situation is the same – before you start your activity, it is better to study and find a suitable supervisor – a person who could give recommendations and teach you how to behave in stressful situations.
They say that one of the most famous proverbs among traders is the phrase “Trend is your friend”. It is of vital importance to indicate the trend, and after doing so, you can build your action plan.
One of the most frequent errors, which trader´s blogs discuss, is an action against the trend. Young traders often start trading against the price movement, being reassured by the thoughts that the price “too long goes in the same direction” or “the price is too low or too high”, “It has to change direction”, etc.
Thinking like that is a big rookie mistake. The price can follow the same direction a long time’ is quite frequent. In this case, the historical highs and lows of the currency pairs are renewed. Here’s a good rule – “it’s never too expensive to buy, and it’s never too cheap to sell”.
But generically, these are the most common rookie mistakes in Forex:
Continuously change strategy and never specialise in a new plan
A plan needs time to be assimilated, and you must practice to know it thoroughly and to know how to apply it correctly. If you change continuously, you will continue to use all strategies superficially and will not benefit in the long run.
Continuously change the Time Frame used
Choosing the time horizon is a question of personality, but also of time available. Many new traders have a job that takes several hours – are you sure that scalping or short-term trading is the right choice? Once you have chosen the right Time Frame, you must practice developing the necessary skills for that type of trading – what is it? Patience? Speed? Accuracy? Analysis? Etc.
No precise rules to set or move the Stop Loss
One of the bases for really understanding what Forex is and how it works is to perceive that behind the great business there are rules that make the mechanism of buying and selling currencies move systematically. Not all trades will turn into profit. There will also be losses.
However, in the long term, when your strategy should statistically generate profits, it will only generate them if you respect the rules if not everything is left to chance. Therefore, you must have clear and precise rules, especially about where to put and how to move the Stop Loss so that it reduces losses when necessary and protects profits.
No precise rules on how to close a trade
One of the most common mistakes is closing winning trades too early and losing trades too late. Apparently, in the long run, this will be harmful because it will have many small gains and although few, significant losses, greater than the sum of the benefits. That’s why it’s also essential to have precise rules on how to close a trade, whether it’s against us or in our favour, to get the most out of the profit potential.
Not having the discipline to follow established rules
It is a characteristic of people in general, not only in trading, to want everything immediately. On the contrary, the results are obtained by making a precise trading plan and learning to follow it day by day with continuity and discipline.
Have you recognised yourself in any of these rookie mistakes in Forex?
It is normal for every beginner to make mistakes at the beginning, it is these setbacks that will motivate them to learn the right way and eventually to become a professional, but every professional starts by learning the basics of their subject, in this case, Forex.
The only way to break the barrier between beginner and professional is to learn the fundamentals of what Forex is and how it works.