You’ve heard your whole life that you should start an investment. The earlier the better, right?
That’s a lot easier said than done. If you’re like most of us, you work hard for your money and you probably don’t have a lot of spare change lying around.
It’s hard to invest your hard earned money into something that isn’t a for sure thing (like your neighbor’s new chinchilla store), and anything that is a for sure thing (like Apple or Amazon) has crazy stock prices. It’s easier to just give up and keep working hard.
If this sounds like you, you might want to try your hand at forex day trading. In this article, I’m going to go over everything you need to know as a beginner in forex. We’ll talk about what exactly is forex trading and what it takes to become a good trader, and the 10 most common trading mistakes beginners make.
Read on to learn how to make your money work as hard as you do, so you can finally break up with your 9-5.
What is Forex Day Trading?
First of all, you’ve got to learn what forex is. Forex stands for foreign exchange. You’ve probably heard of the foreign exchange market, but unless you’re often traveling abroad you probably never cared. It may surprise you to know that about 5.3 trillion dollars are traded in the foreign exchange daily.
If you’re having trouble getting enough money to start your trading account remember that you can always practice with a demo account. Save up your pocket change, say no to that Starbucks in the morning. There are tons of ways to save money. Remember that it’s the little things that count.
Day traders will trade against sets of currencies called pairs. One of the most well-known pairs is the EURUSD. That’s trading the value of the Euro against the value of the almighty US dollar.
Exchange rates are constantly moving and changing. Day traders live off of how the market moves.
Day traders will study the market for patterns and try to predict what the next movement will be so that they can purchase and sell currencies for a profit. Buy low – sell high, right?
You might be thinking that day trading sounds super easy. That’s your first rookie mistake. Those patterns are a lot more difficult to identify than that Rubix cube sitting in your closet, buddy.
Look out for these 10 rookie mistakes you might make when you first get your trading game on.
Not Having Proper Risk Management
Having a proper risk management strategy is by far the most important thing in any kind of investing. If you want to survive as a trader you have got to develop a good risk management strategy.
One of the biggest struggles new traders have is risking too much. What happens when that ‘for sure’ trade wasn’t so sure?
A good goal for risk management is to never risk more than 1-5% of your capital. The beauty of forex is that you can start with only $100. Yes, that means if you only have $100 to work with, then you should be making $1 trades.
If you want to succeed in day trading you’ll need to spend a lot of time practicing. You can’t do that if you traded all your capital away.
Not Researching Your Trading Platform or Broker
It’s important to have a good broker. Things you’ll want to know about your broker are if it’s regulated, what kind of spreads they offer, or if there are any hidden fees they may charge.
You shouldn’t trust your money with just any broker. FPMarkets, for example, is regulated by the Australian Investments & Securities Commission, or ASIC. The ASIC secures your money. This trading platform is compatible with MT4, MT5, and IRESS.
There are many trading platforms and brokers that are not regulated at all. Because of this, it can be very easy for them to steal your money through withdrawals, or inaccurate currency spikes.
Make sure to do your research before making an account with any broker or trading platform.
Overleveraging
Leverage is a when you use something small to control something big. The reason why you can start trading forex with as little as $100 is leverage. You can have an account with a 1:50, 1:300, 1:500, or 1:1000 leverage.
The larger the leverage, the more money you can make. Consequently, the larger the leverage, the more money you can lose.
This is why it is so important to have a good balance (aka good risk management). It’s great to make $2,000 in one trade, but with the wrong lot size, you can lose that same $2,000 in a matter of seconds.
Check with your broker to see what account sizes they offer.
Going ‘All In’ on a ‘For Sure’ Trade
Every trader has done it at some point. You find that perfect trade that you just can’t lose. All the stars line up (and by stars I mean candlesticks), you have perfect confirmation, and you’ve even waited for the retest. It’s all so perfect, and with this trade, you can afford to take that trip to Fiji or pay off those student loans.
Stop.
There is no such thing as a perfect trade. As tempting as it is to try and double your money, it’s a huge no-no.
Day trading is the art of finding patterns in the market and trading with them. Unfortunately, that’s just what they are, patterns, and patterns can be broken at any time. Tons of things can affect the market, and it’s impossible to be on top of all of them.
Trying to Watch the Market 24/7
When you first get the hang of trading, you might find yourself constantly watching the market. While it’s very important to study every day, you have to be careful because It can consume you.
We in the trading world call this FOMO, or fear of missing out. It’s a terrible feeling to be waiting all day for a trade, only to have it happen while you are sleeping.
A good way to counteract FOMO is to only trade in specific times. We call these sessions. There are four sessions, London, New York, Tokyo, and Sydney. These are the times when the market is at its busiest.
While you can study at any time, try to limit your actual trading to these sessions. Keeping this habit may also help you prevent overtrading.
Overtrading
As children were taught that the harder we work the more money we can earn. Trading is an exception to this rule. It’s easy to find yourself over trading because you want to make money really quick.
This is not the goal of day traders.
If your goal is to make a bunch of small trades you might try scalping. People who prefer scalping making smaller profits in shorter amounts of time. You can try adding scalping to your day trading career to help you scratch the over trading itch.
Having Unrealistic Expectations
Everybody looks for a get rich quick scheme. You might think that day trading is a fast way to earn some extra cash or a fast way of buying that Ferrari.
Be careful, friend. Having unrealistic expectations of day trading is a sure fire way to burn yourself out. Forex day trading takes a lot of time, patience, and practice.
You will not, I repeat, you will not be good at this overnight. You will not be rich tomorrow.
Trading Emotionally
It’s really easy to find yourself angry at the market. Maybe you risked too much money on a trade or it just didn’t go how you expected. You might get angry and start trading against the market.
News flash, the market doesn’t care. The market doesn’t care how angry you get.
It happens when you’re happy also. You could have a good streak going, closing 5 or 10 trades in profit in a row. It’s easy to jump on the happy train and let it take you away.
A good way to prevent emotional trading is to take lots of breaks. You don’t want to glue yourself to the charts and end up stuck.
If you find yourself trading emotionally it’s time to take a break and breathe. Try adding a little bit of yoga to your day. It’s great to help you clear your mind and get back on track.
Afraid to Fail
Some time has gone by and you’ve been practicing so much. There may come a time where you look back at your trades and feel like a failure. You may have even lost several hundred dollars, hopefully not more. You may feel a sense of hopeless for your trading career.
Believe me, now is not the time to give up. Every good trader goes through this at some point. Many traders fail simply because they give up.
You’ve gotta pick yourself up and keep studying. If you don’t have any money left to practice with, try opening a demo account. You can practice real-time trading with fake money.
Getting too Greedy
If you work hard for your money it’s going to feel really good when you start seeing an income from trading.
Getting greedy can be seen in many different ways.
You might be constantly placing trades, trades that you haven’t really thought through.
You could be leaving trades open for too long. If a trade is going really good it can be hard to close it and take the profit, and for good reason of course. Everyone wants to get as much profit as possible off of every trade.
Be careful not to let greed take over your trading career. It really could mean the difference between success and failure.
Remember, It’s Okay to Make Mistakes
All in all, everyone makes mistakes. As a new trader, you’re guaranteed to make at least a few of these mistakes. Especially with risk management. You might find yourself saying, “I know it, I just don’t like it.”
If forex day trading doesn’t seem like it fits your lifestyle choices, you might try to check out the stock market. Stocks are another way to invest your money, and they might not take up as much of your time as day trading.
Feel like you need more? Have questions or comments? Contact us now and let us know how we can help!