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July 20, 2018

Trading Mistakes To Avoid as a Beginner


Trading is increasingly becoming popular, and many individuals are thronging futures and forex markets anticipating success. While one can make lots of money from trading on forex markets, it is important to understand the task and have enough experience for better results. As a novice trader, there are various mistakes you should avoid and we have detailed some of them below. 

Preparation Deficiency

Lack of preparation is among the common reasons why novice traders fail. Trading is not as easy as some experienced traders make it appear. For starters, it is quite aggressive and sustaining a grip in the market can be challenging no matter how prepared you are. Making little preparation effort therefore, can be detrimental to your trading efforts. 
Many beginners do not prepare adequately to trade, neither are they equipped with a schedule before undertaking their trading sessions. It is important to note that there are many experienced traders who include; commodity trading advisors, major institutions, hedge funds, and various market professionals in the forex market. 
For a novice to compete against them and succeed, they have to be armed with sufficient preparation. Beginners should take time to study and understand market trends they plan to trade on. Part of the preparation calls for novices to have and follow a daily forex trading demo schedule religiously. This keeps them alert and ensures that they apply their preferred setup with ease immediately it occurs. This applies to both experienced and novice traders.

Failing to Utilize the Stop Loss Order

A trader should always control risk, and they can do this by utilizing the stop loss order in each trade. In addition, it is advisable to include a hard stop for every position you enter. Many novices fail to use the stop loss order assuming that a win is guaranteed in a certain position, while others use a mental stop, meaning they already have a specific level where they intend to exit for a loss.
These decisions are not the best. In the first decision for instance; traders whether experienced or otherwise cannot be too sure because forex markets are unpredictable. In the second decision, many novice traders choose to use a mental stop as opposed to a stop loss order when they intend to linger on a trade longer. 
Traders need to understand that once they have concluded the point of trade nullification, spending more time on the trade becomes unnecessary. In this case, the stop loss order is the best risk management method. Many novice traders have incurred multiple losses that would otherwise have been avoided by using the stop loss order. 

Over Trading and Impatience 

Many traders join forex trading markets with the hope of making quick and easy money. However, this can result in major financial downfalls. Some beginners have the notion that the secret to making money on the forex markets lies in round the clock trading. However, this is not true.  
Some experts believe that rather than trading the rapidly paced 5 or 3 minute timeframe, choosing the higher time frames such as 240 or 120 minutes gives one a better financial standing. Higher time frames present better quality structures and also minimize transaction costs as a result of minimal repeated trade turnover.  
Over trading is a common mistake among many novice traders which they never realize until it is too late. When it comes to trading, what matters is how well one trades as opposed to how frequently. Since traders do not get hourly payments, it is important to focus on getting the best trades as opposed to the highest trades. 

Applying Wrong Position Sizing

Professional and experienced traders understand how important position sizing is in the forex markets. Many times, it can be the variation between failure and success. Professional traders usually use rigid position sizing parameters and use a permanent contract for every account size model, a permanent ratio model, and a permanent fractional model. 
Having a comprehensive position sizing plan enables them to understand the amount of contracts they can assign on a trade. 

Finally

Mastering these mistakes will help you as a beginner to plan ahead in order to avoid them.

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.
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