Top 10 Ways New Forex Traders Lose Money

1. Lack of Experience: Forex trading - like any new initiative - has a learning curve. However, unlike learning a new skill such as learning to play guitar for instance, you are not risking your entire savings while discovering the difference between a major and minor chord. Learning about the currency markets and basic trading principles solely on a trial and error basis is not a recommended approach for gaining the skills necessary to be a successful forex trader.

2. Unreasonable Expectations: First off, stop believing all the “get-rich quick” hype still perpetrated by some forex dealers. Yes, there are those that do get rich trading forex but some people also get rich selling houses. In either case, it does not happen overnight and it might take years to gain the experience and insight to turn forex trading into a full-time, successful occupation.

3. Absence of a Sound Trading Plan: Next to having unreasonable expectations with regards to the risks associated with forex trading and the amount of time required to be successful, a common mistake made by new traders is the lack of a forex trading plan. In reality, there are two aspects to this plan; an overall objective for your trading activities and a plan for each trade you make.

4. Lack of Discipline :A plan is only of value if you actually have the patience and the discipline to follow it. While this can be difficult, it is necessary if you expect to be successful, and it is this very reason why developing a plan prior to the trade is so fundamental. As rates fluctuate, you can easily get caught up in the market and it is only human nature that you will begin to second-guess your actions. If, for instance, the rate moves up surpassing your original take profit point, you may be tempted to hold out for an even higher return; alternatively, if the price drops below your limit level but you believe there is a big rebound just around the corner, you may be tempted to keep the order open on the hopes of a reversal.

5. Failure to Include Stop-Loss and Take Profit Instructions: When you place a market order and leave it open – that is, enter a trade at the market price without instructions to close the order – you are in effect, gambling with the total value of your account. For this reason, you should consider adding stop-loss instructions to all open positions.

6. Excessive Leverage: Depending on your experience level, trade leverage can be a powerful tool to help you maximize returns, or it can be the cause of your downfall. It is not something to be taken lightly and if you do not understand how it works, don’t trade until you do understand.

7. Holding Too Many Open Trades: Fighter pilots call it “helmet fire” and it happens when too much is happening around you too quickly for you to react. In the cockpit of a jet fighter, it can get you killed – as a forex trader, you may not end up dead but you will probably end up broke.

8. Holding Losing Positions Too Long: One of the things that really separates seasoned forex traders from those just starting out is their ability to determine when a losing trade is not going to reverse the trend. Rather than “hold and hope”, disciplined traders will take the loss and get out much more quickly.Ignoring Rate Spread Fluctuations and the Impact Spreads Have on Profitability

9. Exchange rate spreads – the difference between the bid and the ask price – are of utmost importance and directly affect the profitability of each trade. You need to be aware that spread differentials can fluctuate wildly during the day – sometimes to the point of turning a profitable trade into a loosing one. Thinking About the “Big Win” More Than Effective Cash Management (AKA Greed)

10. This one is pretty straight-forward – greed; or more correctly, how greed can cause you to enter into ridiculous trades. This must be the same gene that causes some people to keep “doubling-down” even when the odds are so against them that it make no sense at all. If you want to gamble, go to Vegas.
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