Trading forex can be exciting, envisioning the picture of making a fortune. But the truth is that most beginners lose their capital in just a couple of months. This is indeed an unfortunate fact, proving how important it is to obtain proper education, stay disciplined, and manage risks carefully. Let's go through 5 of the biggest reasons why beginners usually tend to lose their money in the forex market.
Trading on a WhimBeginners tend to find themselves in hot waters because of the habit of trading on a whim. Driven by the desire for quick profits and not having done any research, they rush into the market with hard-earned money, counting on some quick tips rather than any strategic endeavor, and end up losing all of it. It is always advised for newbies to
open a demo account first to get a feel of the markets instead of blowing their accounts with real capital, causing any substantial losses.
Trading at the Wrong TimeThe best time to trade forex is when the market is most active, such as 1 pm to 4 pm (GMT) when both New York and London exchanges are open. Beginners who are unaware of this nuance may find themselves trading during periods of low volume and wide spreads. Timing is crucial, pick the right time when traders can get the narrowest spreads and more easily execute a trade at the place they crave, which can positively boost their profitability. But always remember it works both ways as high volatility also brings more uncertainties to the market.
Constantly Changing StrategiesBeginners will never test out a workable strategy without the necessary consistency of verifying for the long term in the forex market, as they are easily disturbed by the latest hot tricks or so-called ultimate tips racing around the Internet. Being constantly changeable with their strategies, they lose out on a valuable opportunity to work on perfecting and optimizing a single approach based on market feedback and their experience.
Lack of Risk ManagementMany beginners don't even realize the extent of danger they are in when they enter a trade. They may risk unrealistic amounts of capital on one trade or maybe not set reasonable risk-reward ratios and not be able to stick with their risk management plan just because their minds tell them: "Maybe this time it’ll work" or "I feel this right". We all know how the story ends. Without proper risk management, it could lead to really heavy losses and may even blow their accounts.
Poor Trading PsychologyForex trading is not just a financial war but also a mental war. It has always proved quite rough for any young soldier to keep his emotional stability because of the volatility of the market. Fear, greed, and anxiety are going to max out their mental hard drive, and they will eventually fail to make any informed decisions. It’s important to cultivate self-awareness, have a strong mindset, and keep practicing to master the mental game.
As beginners, it’s always recommended to conduct a self-evaluation when trading forex. Trying to avoid these rookie mistakes can help them increase their chances of success and possibly avoid huge losses.
Forex trading is risky and may not be fit for all investors. You should fully analyze your risks; and consult with a professional before trading.
