Truth be told, when you are new at something it is very easy to make mistakes. Unfortunately, in the foreign exchange market you will find that almost all new traders make the same mistakes over and over again.

To have a steeper learning curve and gain more from your trades, you need to identify the common mistakes made by beginning traders and find out how to avoid those mistakes.

1. Misreading Charts

It is true that price charts are the primary tools for successful FX trading online. The main mistake beginners make when reading price charts lies in the identification of time frames.

Traders should always ensure that they are looking at time frames that immediately precede and immediately follow the chosen trade period.

Any other time periods are irrelevant for that particular trade period and should not form the main reason for making trade decisions.

2. Trading From Fancy Tools

Trading tools such as signals and indicators help a lot in identifying trade entry and exit points.

However, before you begin using them, one should understand the source of the signal and how an indicator was derived.

Otherwise one will always be misreading and misinterpreting them and running into unnecessary forex losses.

3. Overtrading

Very many traders go to their work stations and watch the market price actions and start getting an itch for trading.

They start feeling they may be missing great opportunities for huge profits and this leads them into entering trades just to be in the market.

Among all mistakes made by beginner traders, overtrading is by far the most common and most costly of them all.

Unfortunately once one creates the habit in the early periods as a trader, he or she may end up finding it very hard to break the habit and will carry it along even into several years of trading.

The capacity for overtrading to limit the profitability of even the best trading system cannot be gainsaid. It is one of the habits that new traders should fight to break from the very beginning.

4. Lack of Strategy

Very many new traders enter the market excited and with dreams of making it big within the shortest period of time. They then open a demo account, make a few practice trades and after a short while declare themselves fit and capable to handle a real/live account.

Investing your money in a business that you do not have any idea on how to manage is an approach that spells doom even before you begin. Every trader should adequately make use of a practice account for a reasonable period of time.

Use your practice account trades to formulate a practical working forex trading strategy that will work for you. Once you have perfected your trading strategy on a demo account, then you can open a live account.

Remember to start slow by investing small amounts at first and avoiding leverage. Gradually increase your investments but only if your trades are profitable.

If you are making losses on the live account, go back and train some more on the demo account and tweak your strategy until you get it right.

5. Over-Reliance on Brokers

Very many new forex market entrants place a heavy reliance on their brokers. This is a wrong approach since no matter how helpful your broker is, you still remain with the overall responsibility of managing your forex investment.

You should take personal responsibility for all your trade actions from the very beginning.

Click here to read a review of some brokers who will help you stay clear of your goals as a forex trader.

6. Trading On Emotions

This is a weakness faced by most traders, not only new market entrants. The fear of losing money makes it hard for most new traders to make risks.

Greed gives rise to many poor decisions that result in a depleted FX trading account. Trading on emotions is one of the most common mistakes that lead to forex failure.

7. Over Leveraging

The forex market is the most highly leveraged markets with most traders offering leverage levels of up to 500:1.

This increases the ability of a trader to profit greatly and grow their account within a very short period.

However, when you use too much leverage, a single loss-making trade can instantly wipe out your whole currency trading online account.

8. Lack of Knowledge or Experience

Forex trading looks so easy, especially when you read the success stories of how someone opened an account and made big profits in a matter of days or even hours.

However, the truth is that foreign currency trading takes a lot of education before one can attempt to trade successfully. And even afterwards, it still takes many trades before one can start making consistent profits.

Use a demo account to prepare yourself for the live account and only trade on real money once you have consistently made profits on the practice account.

9. Lack of Risk/Reward Implementation

Even the simplest of us all knows that in order to make profits you need to gain more than you lose.

Unfortunately, most of us do not put that knowledge into practice when we first start trading on the forex market.

Disregarding risk reward ratios result in new traders losing large proportions of their trading accounts on very few bad trades.

1o. Wrong Position Sizing

Before knowing any better, most new traders begin by thinking that a wide stop loss means we can risk more and a small stop loss means we have risked less.

This reasoning leads us to adjust stop loss when we want to adjust the traded lot size. This is a wrong approach to managing risks yet very common with traders.

11. Gambling Rather Than Trading

Gambling provides a nice gaming thrill that brings you back to the casino for fun and games again and again.

Forex trading is a business investment that should never be approached in the same way as gambling.

You need a strategy and you need to keep records. You need adequate knowledge and experience.

Summary

There are many forex trading mistakes that if not pruned off during the beginner period, they’ll frustrate your forex trade growth and make it impossible for you to have a fruitful, long term, and successful trading career.

If you have any of the above tendencies, you should take steps to nip it in the bud early enough.

Photo credit: ForexLearning