Five Mistakes to Avoid when you Start to Trade

Trading the capital markets is not an easy endeavor. It requires patients and strategy along with risk management and focus. A forex trader is not a gambler, that purchases daily lottery tickets expecting to win a bunch. You need a trading plan out your financial goals and create a trading outline that will allow you to win consistently through all types of market conditions. Here are seven mistakes you should try to avoid when you start to trade the capital markets.

Performing Due Diligence

To trade the forex markets you will need a broker to help you facilitate your trades. There are hundreds of brokers out there, and each provides different advantages. Before you hand over your hard-earned capital to a broker, make sure you perform due diligence. Search the internet and determine if there are any red flags. You need to avoid giving your money to brokers that are untrustworthy and have sketchy reputations.

Educate Yourself

Once you find a broker that you believe is trustworthy and respectable, you should educate yourself about the forex markets. Your broker should have an education section that allows you to learn about strategies. You should learn about fundamental and technical analysis and how to use a chart to help you enter and exit trades.

Got a Hunch Bet a Bunch

Prudent risk management is the key to successful trading. You either need to win more than you lose or win more on winning trades than you lose on unsuccessful trades. If you bet large amounts on trades hoping that you will win big and do not control your losses you are risking ruin and are destined to fail.

Create a Trading Plan

Many novice traders want to start risking capital immediately. You might get some advice from a friend and you believe that it’s imperative to place a bet. There are several steps that you should take before you place your first trade. Not only should you create a trading strategy that helps you enter and exit a trade, but you should also determine in advance how much capital you are willing to allocate to each strategy that you employ. Additionally, you need to determine if you plan to trade a discretionary strategy or one that is purely systematic.

Practice Makes Perfect

Once you have created a trading plan that has one or more trading strategies, as well as, define your risk management, you should practice. You need to avoid trading without practice. You can paper trade the market, which means that you write down trades that you plan to transact and follow them. Alternatively, you can use a demonstration account to practice trading. A demo account is similar to a real trading account. You will have access to all of the charting software, the balance sheet information as well as a P&L monitor. The only difference between a demo account and a real trading account is the fund that is used is demo capital instead of real capital. The key is to use this process to practice your trading strategies and risk management.

The Bottom Line

To be successful at trading you need to practice and avoid making several novice errors. Make sure you perform your due diligence before you give your capital to a broker. Make sure you have a plan and trade using prudent risk management. It’s very helpful to educate yourself on the nuances of the markets before you begin to trade, and access to a demonstration account will allow you to practice your strategies before you risk real capital.