Online trading is booming. Since the beginning of the pandemic, brokers have seen an influx of clients from around the world. Nigeria is no exception. The local community is growing rapidly (it includes 300,000 traders and counting) and Forex is a popular direction. Still, many beginners (online traders) fail as they commit the same typical blunders.
1. Going Live Too Soon
It is tempting to venture into the live market, but demo accounts were invented for a reason. Typically, a rookie needs three-four months to learn the ropes of Forex trading in the risk-free mode. Do not rush headlong, or you will only waste your deposit.
Many brokers offer demos free of charge. These are either unlimited or come with a substantial virtual deposit. Take time to try popular strategies and formulate your approach. Stay in this mode until you gain the necessary skills and confidence.
2. Being Emotional
Live trading always feels different as real money is on the line. Successful traders have strong emotional control. Their every decision is rational — i.e., backed by solid analysis — fundamental, technical or both. You need a certain degree of mental fortitude to adhere to your strategy during a market frenzy.
Fear, greed, and panic are a trader’s worst enemies. Be mindful and never chase losses. Failed trades cause frustration, but you must learn to get over them. Traders who stray away from their strategies set themselves up for failure.
Some styles are more stressful than others, and scalping is the most intense of all. Can you handle the pressure of short-lived trades? If not, focus on broader time frames.
3. Neglecting Risk Management
All markets are risky, which is why traders must use Stop Loss. Instead of staring at the screen waiting for the right price, have your positions executed automatically. However, that’s not all.
Risk management must be multifaceted. In addition to setting automatic triggers, limit volume per trade. Never risk more than 1% of total capital per position. It is tempting to trade more in the hopes of larger profits, but potential losses are also magnified.
Finally, be careful with leverage. On some assets, it reaches 1:100, so you can open a trade worth $10,000 when there is just $1,000 in your account. If it fails, you lose your entire investment. Leverage is a tool for highly experienced users.
4. Putting All Eggs in One Basket
Seasoned traders know better than to focus on a single instrument. They develop diverse cross-market portfolios. Ideally, your assets must be unrelated. If any of them brings a loss, it could be neutralized by profit elsewhere. Consider adding insights from https://www.forextime.com/education/trading-precious-metals to your strategy.
Your selection could include Forex pairs, CFDs on crude oil, spot metals, shares of tech giants, etc. Brokers like Forextime offer them all. In the long run, you can build a multifaceted portfolio using the same account and terminal.
If you make a loss trading EUR/USD, Facebook shares or CFDs may still bring a profit. Contracts for a difference let you similarly trade a bundle of instruments — indirectly, just by speculating on their price without ownership. CFDs on indices are also diversified by default, as every index tracks the performance of a cluster of companies.
5. Not Tracking Progress
The need for a strategy does not mean that you cannot change it or that you shouldn’t track results. In forex, there is no one-size-fits-all. Some things can only be learned through trial and error.
Keeping a journal may seem like an old-fashioned way to track progress, but it is effective. While terminals like MetaTrader have history features, they are not enough. Note down key details of every single trade:
● Instrument;
● Volume;
● Liquidity;
● Entry and exit price;
● Financial result;
● Your motivation for opening the position.
Use these notes to review performance weekly. Have you stuck to the strategy or deviated from it? What hinders progress?
6. Becoming Complacent
The moment you think you know everything, you are doomed to fail. In trading, education never ends. Experts keep an open mind and continue learning. The markets are constantly changing due to factors beyond any trader’s control. When you grow complacent, you get stuck in your ways and, inevitably, lose.