Anyone can access the forex market. Unlike other markets, this market has low entry standards. Today, all you need to trade in foreign currency is some cash, a laptop, and a working internet connection.

However, you’ll soon learn that being profitable in a forex market is not as easy as entering one. Here are a few common mistakes first-time forex traders make.

1. Trading without a Stop Loss Order

If a trade falls below the price you expected, you have one of two choices. Either take the loss or get out of the trade. Although common sense dictates you do the latter, there’s a catch.

To get out of a losing trade, you must have placed a stop loss order on the same day you placed the trade. This way, the order is active when you trade, giving you a way out when things go south. As a result, experienced traders always trade with stop loss orders.

In contrast, inexperienced first-timers rarely do so, but not for long. After a few painful losses, they quickly learn how to control risk using the orders.

2. Poor Risk Management

Even with stop orders, newbies still fumble when it comes to general risk control. In particular, they fail in two key areas - win-rate and reward-risk ratio. Win-rate describes your success rate, comparing profitable and loss-making trades. So, if you lose on 70 trades for every 100, your win-rate stands at 70%.

On the other hand, the risk-reward ratio gauges how much money you lose. So, if you lose $100 but make $125, your ratio is 1.25. As a general rule, to remain profitable in forex trading and to reduce your risk, always keep the ratio above 1.25 and the rate above 50%.

3. Not Taming Losses

Although orders, ratios, and rates solve the risk problem, they don’t address that of losses. As a result, two problems still persist. One is determining how much capital you should risk on a single trade. Since the industry standard is 1%, your stop-loss orders should activate when your losses exceed 1%.

The other is how to tame daily losses. You may lose only 1% on a single trade, but if you lose consistently, the percentage adds up. Somewhere along the way, you may also win say 3%, recouping your losses. But where do you stop? You stop when your daily losses reach 3%.

4. Ignoring All You’ve Learned

Despite the best risk and loss management techniques you learn, sometimes, you’ll be tempted to throw them out. For instance, you may be on a winning streak, feeling you can’t lose. Or, on the other hand, you could be on a long losing streak, desperate to recoup your losses. Whatever the case may be, never engage in risky trading behaviour.

Conclusion

Like with every other trade, first-time forex traders also make mistakes. If you’re going to trade for Forex, make sure that you start on a solid foundation. Start slow and can ease your way in, so you can learn the tricks of the trade.