Overtrading
Overtrading is one of the most common and deadly mistakes new traders make. The FX Market moves fast. Very fast actually. New traders tend to get caught up in the wild volatility that can oftentimes be present in the market, and they tend to fall prey to reactionary trading. For example, Bob is sitting in front of his computer, looking at a 5 minute chart on the GBP/USD. As price begins to move up 5, 10, 20 pips, Bob is simply watching green candlestick after green candlestick form. Finally, Bob decides he has to get in on the action, as he is convinced price is going to continue moving in the same direction. Then, as he enters his long position in the GBP/USD, price instantly reverses and begins moving back down 5, 10, 20 pips. Suddenly, Bob cuts his loss at 20 pips. After a few minutes, the same scenario unfolds. This is a sure way to lose money as a new trader. This style of trading will often lead to placing way too many trades in a trading session. Instead of placing 5-10 trades in a single trading session, new traders would be better served by planning out their trades with extreme detail, and then seeking to take 1-2 trades per trading session.
Lack of planning
Excited about the potential for large profits in the FX Market, most new traders develop the very destructive habit of not planning trades. A lack of planning is so common among new traders, that one could argue that it may be the single biggest cause of accounts being drained of capital. Trading is a business, and anyone who profits consistently from daytrading financial markets has this single trait in common—they treat trading as a business. As a business seeks to grow, it must have a very detailed business plan of the exact steps it will take in order to reach target growth levels. First of all, a trader will find much more confidence and organization to be present in their trading if they develop an overall business plan. Second of all, a trader must develop a method of planning each individual trade. As one spends time researching technical levels and fundamental key drivers, and then puts these findings into a tradable plan, one will greatly increase the probability of success over the long term. A strong method of planning will help eradicate many of the destructive habits that tend to plague new traders.
Unrealistic Expectations
Since the main draw for most people as they enter into the FX Market is the potential for making large amounts of money, it is easy for new traders to fall prey to false or unrealistic expectations. The path to becoming a successful trader is littered with the empty accounts of those who expected to turn $10,000 into $1,000,000 in a year. Expectations must be in line with reality. Large hedge funds and professional traders trading large managed forex accounts have access to the most advanced technology and news sources, and they are thrilled to return over 20% in a single year. Of course, they are handling much larger amounts of money, so it is easier for a small trader to do much better, but the reality is that traders must have a realistic goal. Trading is a profession that requires a high level of skill, similar to that of an engineer, architect, or physician. Skill sets like this cannot be developed overnight. New traders are served best by having realistic expectations that with diligence, hard work, and a heavy dose of professionalism, they will develop the skills necessary to find success as a trader in the FX Market. There are no shortcuts to success in any path of life, and trading is no different.
