The purpose of forex trading is to be profitable and be able to make money as a self-employed person. But this journey can be not easy, especially if you’re new in forex trading. There will be situations when you will lose money and you will try to recover that amount of money immediately. And that’s one the mistakes that most of the new traders in forex do.
When I started trading forex 5 years ago, I thought I can make a lot of money after some weeks. The reason that made me think I’m ready for a live account to start trading and make money, is that I spent some months trading on a demo account. And during the trading on a demo account, I had mostly a successful ratio of trades.
This made my jump on a live account way earlier and it had consequences on my trading because I didn’t practice enough time to learn how to overcome losing situations too. I also made mistakes during the technical analysis on some currency pairs.
And in this article, I will list some of the common forex trading lessons I wish I knew before trading the foreign exchange market.
You need a strong mindset
When you trade the foreign exchange market, not all the time you will win. There will be times when you may not have a profitable day, week, or even months in trading. And recovering from these losses can be tough, especially if you’re a beginner in the forex market.
In my trading journey as a forex trader without any experience, when I had losses, I tried to recover these losses immediately. That’s called “revenge trading” because I tried to take revenge for trades that ended on a loss.
And trying to recover these trades as soon a possible and turn them in a profit was something I tried to do. And I failed because when I did that, I was trading with emotions, trying to recover losses by opening trade after trade.
Trading immediately after you lose some trades is something that you should never do. With this trading method, your emotions will try to affect your decisions and push you to make mistakes. To overcome these situations, you need to have strong psychology that doesn’t break your trading rules.
If you trade based on your technical analysis and not in your emotions then you can overcome emotions in trading and improve trading skills in general.
Don’t try to be rich on a day
The reason why we trade forex is to make money so we do not have to work on 9/5 jobs. And this was my goal when I joined forex years ago, that I wouldn’t need to work other jobs and have my own income through trading. The goal I had, affected my trading psychology sometimes, as I tried to increase my account balance with the wrong mindset.
When I closed trades on profit, I didn’t stop trading for a day since I caught a good amount of pips. I tried to make even more money since my analysis of the currency pair worked perfectly. And since I had success with the trade, I opened shortly another order to increase the account balance even more because I thought I would win again.
Well, that’s where things started to mess up for me as a forex trader. The greed took affected my emotions, as I thought I would make more money. But in fact, when I traded shortly after I closed some trades in profit, I closed the other trades on losses.
That happened because I didn’t have a correct analysis of the forex trading market, but even if I would have, I shouldn’t have traded it. The only thing that I should have done is to stop trading for a day or more days. Because I was already in profit and shouldn’t have closed trades in small losses.
And you as a trader hopefully you can learn from this mistake. Ending the day with just some pips is better than risking your entire profit. Another thing that you should remember and use is risk management. My general advice is to not open trades with bigger lot sizes if you don’t have a good balance in your currency trading account
Limit your trades
Another lesson that I should have known before trading is overtrading. Opening many trades on a week or a day can be risky, as not all trades go in your predicted direction. Limiting your trades according to your trading plan is something that you should do. By trading more than it’s needed you may start to become less more successful with your trades.
In my beginning of forex trading, I didn’t have a trading plan that would limit my trades. And I opened more than 30 trades per week even that I was a swing trader. If you’re a swing trader then you should trade less more trades, but if you’re a scalp trader then you may need to open more trades.
Trade on a demo account for a long time
After learning for months about different forex lessons that explained how to trade forex, I started trading first on a demo account. And that’s something that each new trader in forex should do. During my trading experience on a demo account, I was able to create a winning strategy. Then I started trading on a live account that was funded with my money.
But the mistake it was with the time I spent on a demo account. After I found a winning strategy on the forex market, I jumped way earlier on a live account so I could make money faster. And trading on a demo account for a shorter time like with my forex brokers that I used, it affected my trading on a real account.
I had my winning strategy, but I didn’t have a strategy on how to react to losses, and how to control the emotions. I practiced on a demo account only to find a winning strategy, but since I didn’t spend enough time to learn how to react in losing situations, overcoming greed, trading without emotions, it affected my trading performance on a live account.
New forex traders, should spend enough time in a demo account to find a winning strategy and learn how to react to losing situations. You may think that spending more than 5 months or even a year on a demo account, is unnecessary.
But if you spend enough time on trading platforms with a demo account it can benefit your trading results. You can practice how to find a winning forex trading strategy, learn how to control emotions, how to react to losing trades, etc.
Learn from mistakes
Learning from the mistakes that I have done in the past, it helped me improve my trading. These mistakes can be in different circumstances, such as wrong stop losses, wrong entry price, not using risk management, overtrading, etc. And by learning from these mistakes it helped me improve trading currencies in the foreign exchange trading market.
During your journey on trading as a beginner, you will make different mistakes and that’s common as every trader does mistakes at the beginning and even a successful trader does mistakes too. But the difference is that a successful trader has learned from past mistakes. And you as a new trader in the forex market you should learn from the past mistakes.