Don't be a Lemming

Thousands of people try their hand at FX trading for the first time each year in the UK, and despite all the heeded warnings most fall into the same old pitfalls that can so easily be avoided. Here are some do’s and don’ts that may not make you money, but will most probably help you save some!

·       Shed the ‘get rich quick mentality’ – A lot of people start trading and expect their deposit to grow as fast as their house price did in the boom times. In actual fact, FX trading should not be seen as a casual investment but rather a tough, prolonged learning curve similar to starting your own business. All struggle, most fail and only some succeed – depending on how much work you are willing to put in.

·       Avoid random decision making - Traders should know where they intend to open and close their position before entering any market, based on a particular system they are following. Setting this ahead of time will allow you to focus on your chosen system and avoid second-guessing yourself.

·       Don’t bite off more than you can chew - One aspect of the FX market that attracts many traders is the opportunity to trade with ‘leverage’, in other words trading with vastly more money than you actually have. FX brokers will offer to multiply your initial deposit by as much as 500 times to give you the chance of making larger profits – that doesn’t mean you have to. Most people jump at the chance without realising that your losses will also be multiplied if you get it wrong. This is why taking the slow approach works best.

·       Don’t marry your trade - Many new traders hold on to losing positions far too long thinking, or hoping, in some cases that the market will turn around despite the losses mounting in front of their eyes. The opposite is just as destructive – closing a good trade too early.

·       Discipline yourself - Disciplined traders, who stick with a tried and tested trading plan will, more often than not, profit over those who trade inconsistently without prior planning. It is crucial that you plan your trades and trade your plan rather than randomly picking out trades on a whim.

·       Education, education, education – An all too common mistake made by newbie FX traders is to start a trading account without sufficient knowledge and understanding of how global events actually influence the FX market. Before buying and selling as if there’s no tomorrow, try to learn as much as you can about how various currencies trade in practise. There are dozens of good educational courses and other informative material available online to help you. The broker you decide to open your account with should offer free courses to get you started.

·       If you fail to prepare, prepare to fail – Without a concise trading strategy it will only be a matter of time until the market takes you for a ride. So before you start, get your trading strategy off to a healthy start by asking yourself a few questions, such as:

How many trades will I aim to make during an average day?
What time of day will I trade?
Which technical indicators will I use?

What factors influence the currency I am trading?
What is my estimated risk and reward for each trade? 
What is my daily trading limit beyond which I will not go?

Hopefully these tips will assist you on your path to becoming a successful trader – just remember, that trading takes a minute to learn and a lifetime to master so results won’t come easy. At the end of the day trading is a tough racket so it’s important to not let losses get you down or profits go to your head and most importantly of all, never trade with more than you can afford to lose.

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Commissioned by Forex Club

Written by George Tchetvertakov

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