Learn the reasons why Traders lose money with the Forex market
LITTLE IMPORTANCE TO FORMAL TRAINING.
This is a mistake mostly made by novice Traders, when reading so few books or posts about Trading they forget that it is a profession that can take many years to master.
DO NOT DEFINE A TRADING PLAN
Every business model must be executed through a Plan, Trading is no exception, A Trading Plan is what differentiates this profession from a game of chance, Commonly a high percentage of novice Traders try to operate without one, it is for that reason that very few people achieve success in financial markets.
It is likely that by not knowing clearly how a Trading Plan is structured, they are likely to make this mistake.
The Trading Plan is basically a guide that is composed of two factors where a series of rules related to the strategy and the administration of capital are determined, giving space to new ideas or complementary elements that help the fulfillment of a profitable and consistent operation.
Elements that a Trading Plan must contain:
● Clear market context to take entry or exit positions.
● Percentage of capital at risk for each Trade in our operations.
● Define parameters to stop losses according to our established risk percentage.
● Parameters to take benefits according to our objective.
It is really necessary to avoid this kind of money to achieve consistency in the financial markets.
DO NOT HAVE AN ESTABLISHED CAPITAL MANAGEMENT
One of the reasons why FOREX is so risky, is because of the leverage system that all Brokers use, this gives newcomers the possibility of dreaming of great benefits without correctly calculating their real risk percentage that each operation has with leverage.
It is very important to ask these questions when trying not to make this mistake, depending on the answer that is given to each of them we can know if we are on the right path to consistency in trading or we will simply be a Trader of the lot that lose money, the questions are:
● Is the money I am investing something I can lose? (risk capital)
● How many Trades can I take per day?
● What is the percentage of effectiveness established in my strategy?
● Am I managing a good ratio in my operations (Risk / Benefit ratio)?
The last question is crucial so that the monetary management is done in a correct way, however it depends on each strategy that is why it is necessary to have a defined Trading Plan since with each strategy the ratio is different.
An example of how it can vary is:
A strategy that has an estimated profit of $ 500 in 8 out of 10 Trades with respect to an eventual loss of $ 1000, as on the other hand we can see strategies that handle an estimated loss of $ 500 and a profit of $ 1000 even if the percentage of effectiveness is Only 40% (2 out of 5), both strategies can be profitable.