New To Trading? Avoid These Mistakes!

Starting out in trading is definitely an exciting experience but you must be very careful not to make these dangerous mistakes that most beginners make.

While there are many dangerous mistakes for forex newbies to make, I’ve highlighted the two that are subtle enough not to be noticed but can have a big influence on your trading career.

1. Undercapitalization

Insufficient initial capital is the first mistake by beginners, and it usually ends up killing them.

I’ve seen traders, including myself, blow their whole trading account during the first month or week.

Your trading capital is lost even before you have the time to properly learn to trade.

This is what usually happens to new traders:

They don’t have sufficient trading knowledge and experience.
They are not familiar with risk management principles.
They underestimate the risks involved in their setups, which leads to impulsive and often expensive execution.
Another habit I’ve seen among trading newbies is using tight stops on small lots and even smaller trading accounts.

Using small trading lots is not a death knell for newbies’ accounts but using small and tight stops might be.

By using short and tight stops, you increase your chances that the stops will be triggered more frequently and your total loss will consist of many small losses.

Your trading account should be as large as possible in order to correspond with market conditions and provide the necessary flexibility in making trade decisions. Position size matters, too!

Like any business, you have to make sure you are adequately funded. Don’t try to lower risk by only depositing a portion of your available trading capital.

Fund yourself right but use proper money and risk management!

2. Overtrading

Overtrading is a process of buying and selling Forex pairs, stocks, or other securities excessively. It involves trading all-day without stopping and eventually, making ineffective decisions that lead to financial ruin.

Considering the typical market activity, it’s easy to lose half or even all your trading capital with this. This problem is sometimes directly connected to boredom, the thrill of making money, or lack of education and guidance.

Your trading capital is used to earn money. You should treat each dollar like a newborn baby.

Your first and foremost responsibility is to protect it. If you lose it, you have less to help you earn money.

Have you ever made any of these mistakes? Please share your experience in the comments below. I’m sure we’d all be interested in possibly learning from each other.

What additional advice would you give to a newbie trader?