The forex market is perhaps the easiest market to access. This easy entrance feature has attracted a heap of people towards it which is one of the reasons why it is almost saturated. However, not all the people who operate in the forex market have become successful in mastering it. This is probably the reason why new entrants don’t end up getting a return on their investment and end up avoiding the market altogether.
However, by doing a little bit of research we have found out that newcomers tend to make mistakes which can easily be omitted with a little guidance. So, if you are considering jumping into the forex market, then don’t dive headfirst without hearing Fuad Ahmed share a few mistakes that could be avoided.
1. Opting for the wrong platform
To start off your journey in the forex market on a well-established note, it is crucial to first invest in a platform that is deemed as reliable and competent to carry out forex practices. Often times forex newbies are conned into buying an inadequate platform which only ends up slowing them down.
Signs of a good forex trading platform are but not limited to; a choice to experiment with different trading symbols, news keeping you updated about the fluctuations in the forex market, educational resources to keep you on top of your game, etc.
While choosing a forex platform, also check whether it has the option of trading exotic currency pairs or not, as most brokers limit you from trading a particular kind of currency pair which becomes restrictive if your platform doesn’t have a variety of options to choose from.
Prior to purchasing a platform, also make sure you are aware of their policies and what they charge for trades. This is an important thing to keep in mind which should be in the priority of things to initially inquire.
2. Putting a lot on the line
New entrants of the forex market are on cloud 9 after signing up because they have a preconceived notion that they will end up making billions. However, any person who has experience in the forex market knows what an illusion that is. Similarly, newbies bet a huge amount of money on a trade and more often than not end up losing, which, as you guessed it, shatters their illusion. Most people stop functioning in the market altogether due to this huge loss incurred whereas some become completely reluctant.
A good way to approach the forex market is to diligently invest only 2% of your capital on a trade. The amount may seem small but imagine losing that 2%. Would it still seem small then? This way, you can really limit how much you lose and gradually learn the basics of a forex market.
Think of it this way, if you trade 25% of your capital, you would have to get double return on your investment, just to break even! Sustaining in an ever-fluctuating market such as the forex market is not easy if you will be taking such huge risks, especially, if you are just starting out.
Another upside of investing only a little money initially is that you will be able to stay calm even if you lose the first few trades. This will additionally keep you from closing positions too soon out of anxiety since you won’t have much to lose and you wouldn’t panic.
3. Sticking to the day trading mentality
Plenty of forex entrants tend to fully overlook longer time frames. They focus on becoming a day trader, completely forgetting that longer time frames show a clearer picture of a currency’s trend. In fact, the more consistent a trend is, the stronger it would be.
A glance at a 10-minute chart is not going to give you as much insight as a daily, four-hourly or hourly chart will give you. Although, it is quite alright to operate on short-term trades, bear in mind that you have to be a lot more experienced and smarter about your moves with your short-term trades as opposed to long-term trades.
We would suggest you to operate in the longer trades initially to keeps risks at bay and avoid losing money.
Additionally, your trades could also be subjected to noise which occur because of price manipulation by big enterprises and companies. So, in such cases, long-term trades will provide a much-needed safety net for you.
4. Trading without a stop loss
We can’t stress enough how important it is to take preventive measures while making a trade. A stop loss basically gets you out of a trade if the price doesn’t move in your favor and you are about to incur a loss. Simply said, if the price moves in the opposite direction then there is no reason to stay in a trade. This is your cue to move on to a new trade.
Apply stop loss as soon as you make a trade. If you haven’t applied stop loss then nothing is going to shield you from an upcoming loss.
5. Being too quickly affected by news
It is evident that currency pairs move up or down depending on the news. However, it isn’t a clever strategy to predetermine the direction it will move in and set a position even before it is advertised. This means that you could lose a trade within minutes of the news being released which will put you in jeopardy. While it is good to be proactive, in this case it is advised for you to be calm and clearly introspect whether placing a trade in this scenario would be beneficial or not.
The forex market can help you earn a decent amount of money, however, such success in foreign exchange is only acquired with diligence and patience. By now, you may have figured out that forex market isn’t as easy as people have made it out to be. But you can always educate yourself and learn about it with a little practice.