15 New Trader Mistakes and Misconceptions
1. Thinking FOREX trading is easy.
It’s not. You need to put in the time, effort and money to learn and improve.
Don’t be cheap and think you can find everything about FOREX trading on the Internet for free. Buy some good quality books and maybe take a course. It will be worth it.
My FOREX knowledge is just a tiny drop in the ocean and I know it’s going to take years and years to build my knowledge up to the standard I want, but I am perfectly okay with that.
2. Starting account size confusion.
Bloggers and forum members saying they started with $500, $1,000, $5,000 or $20,000 means absolutely nothing to me and is only half the story.
Are you using micro, mini, standard? How many lots are you trading with per trade? How much of your account are you risking each trade?
$1000 may be a lot to someone or it might be pennies to someone else. Only you know your financial position and only you know how much you can afford to put into trading and learning about FOREX.
3. Vague knowledge about pips.
Don’t read too much into someone’s trading ability/profit just by the amount of pips they say they make. Someone “only” making 1-10 pips a day could be bringing in hundreds/thousands of dollars.
1 pip could be worth 10 cents to one person or be worth $100 to someone else.
4. Ignoring the fact you could lose your entire account balance.
And I don’t just mean from bad trading. Your broker could go completely bust tomorrow. How would you deal with that? How would your partner react to that?
You guys are smart enough to know not to learn to trade with money you need for bills, emergencies, etc.
5. Not being honest with your partner or family about profits/losses.
Be very honest with your partner. Lying about money can cause all sorts of problems.
6. Searching for that 100% method.
Getting trades occasionally wrong is completely normal. It’s when your losses are constant and massive compared to your account size, then you really have to reassess.
7. Not using a demo account properly.
If you aren’t going to go live with $20,000 and use 3 standard contracts each trade, then why are you trading like that in a demo account?
Yes your profits will look good in a demo if you are playing around with standard lots, but it’s going to give you a false sense of profit and loss if you are not going to use standard lots when you go live. $3000 a day sounds amazing in a demo, but if you were only realistically going to come out with $30 using a live account, then that’s a very big difference.
FOREX trading can be very addicting. Greed and not being patient can lead to overtrading.
Let’s say you made $1000 in 4 hours. It can be very tempting to want to try and do that again and again and again in a day. If you are getting clear setups, then go for it! If not, don’t be greedy. Wait for the next clear setup or just call it a day.
9. Forgetting the market will always be there.
Okay, so let’s say you lose your entire account balance. If you still want to be a FOREX trader then you need to learn from what you did wrong, get back to saving and try again. It’s not over until you say it’s over. The market will be here tomorrow, next month, next year and 5+ years from now.
10. Half finished method/Not trusting your method/Not enough method testing.
A method needs to be thoroughly tested. I personally don’t believe a method can be tested over a couple of days/weeks.
I have put in thousands of hours to get my method to where it is.
11. “Don’t trade small time frames” “You can only profit off the daily time frames”
Not true. You need to work with your personality and find what suits you.
12. Seeking validation from others.
I personally think a good trader is someone who can come up with his or her own analysis and trust it. A good trader doesn’t need to search for the same conclusion by other traders to validate they are “right”.
13. Just because someone can pump out market knowledge, it doesn’t mean they are good/profitable traders.
I talk to quite a few traders on Twitter who other people look to for trading advice. They come across as quite smart on the main feed – sharing their ideas, Reuters/Bloomberg news articles, blog posts etc. But behind closed doors, they actually admit to me they are really bad traders. I will never out them to the world, as I am not a horrible person.
Just be VERY careful, because some people are not what they seem. There are a million reasons why someone can be sitting at home all day and then just pretend they are a successful fulltime trader.
14. Underestimating young traders.
That young trader you talked to on Twitter could be a multi millionaire in 5-10 years time. If you remind them you believed in them from the start, they might just buy you a Ferrari haha.
In all seriousness though, some young traders are actually very switched on and have good ideas about trading and the trading lifestyle. Some young people are actually very mature for their age (*cough* me).
15. Being too scared to ask for advice.