Many people said it is a given that your first trading account will be wiped out. That is the price of experience, they said. But, is that true?

Many people said it is a given that your first trading account will be wiped out. That is the price of experience, they said. There are even some who says that you are not an experienced trader if your account balance have never been wiped out.

But, is that true?

In fact, there are also traders who have never lost all of the funds in their balance, although they experienced drawdowns and margin calls. They managed to avoid disaster by simply avoiding the following blunders.

 

1. Opening live account before knowing how to place trades

Many people started trading without trying out demo account first. Is that a mistake? Actually, no, it's not a mistake. But that is only if, say, you have watched an experienced trader works or you have traded stocks before or any other experience that allows you to recognize when and how to place trades in a trading platform. Otherwise, it will be like opening a door to nowhere.

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However, many people mistakenly thought that the first step to trade forex is opening a live account in a broker. But afterward, they got confused on how to open trades. They complained that brokers played them false because price goes down as soon as they order buy and goes up as soon as they order sell; when in fact, they are the ones who don't understand how forex trading is done.

Many don't even know that you will need to download platforms such as Metatrader4 first. In these cases, usually they thought forex trading is simply buying a currency and wait till the price goes up to sell it and get profit. They don't realize that their funds can quickly deplete while they wait for the price to go up, nor do they know about technicals and fundamentals that will enable them to gain profits efficiently. In the West where many teenagers already received basic knowledge about financial market, these cases may not be many; but in Asia, these kinds of foolishness are rampant.

 

2.Trading many pairs while ignoring their fundamentals

There are many technical-oriented traders, and it is actually all right to trade forex based on technical analysis only. However, to completely ignore currencies' fundamentals is the action of a fool.

Fundamentals in forex trading is more than simply economic calendar. It also involves how currencies relate to each other. There are currencies with positive correlation, and there are currencies with negative correlation. There are weeks with high volatility and times when volatility slowed. There are currencies that kept in tight leash by its central bank, and currencies that are allowed to run freely. Traders who ignore news and economic calendar certainly will soon lost in the forex jungle.

Even worse will be the fate of those who cannot even understand why price moves the way they do, and enter the market by blindly following analyst advice. They can place trades well, but because of the absence of reasoning, they cannot respond correctly to changes. Thus they failed in exiting the market when in fact, one of the keys that will determine the success of a trade is the trader's perfect timing at entering and exiting the market.

 

3. Allowing emotions to cloud your decisions

Mastering one's emotions and stay objective during trading is not easy, as many traders can tell you stories upon stories about the blunders they did because of bad judgments. It is human's nature to get emotionally involved in their activities, especially if it is related to money. Therefore, it is not wrong to be emotionally involved, but it is wrong to let emotions rule your decisions.

Furthermore, conquering unruly emotions is not as easy as it sounds. Without actually facing a crisis during trading, it is virtually impossible to avoid emotional decision-making. This is why many people lost money in live trading even after months of trading in demo account. The emotions we feel when trading using real money differs greatly compared to the feel of trading using virtual funds. After all, virtual funds are not real, while real money can be our hard-earned savings or our future pensions.

So, what to do?

Learn forex trading before you open a live account. Trade in live account ONLY after you have established a reliable trading strategy as well as mastered steady money management while trading in demo account. Choose a good broker that allows you to practice strict money management (as opposed to one that offers wide leverage) while building your emotional tenacity. Later, if you are still able to smile even after suffering consecutive losses and have the mental strength to leave your desk afterward to go back to the same desk in the next day, then consider you that have win against your own emotions. At that point, of course, you are no longer a novice.