As a trader and analyst, a big part of my job is to have a clear understanding of the possible outcomes of the technical price action in the financial markets; a clear understanding of the future. However, as trading always involves risk, I also feel obliged to explain new traders the hidden dangers they might face when starting to trade the Forex and CFD markets. So let's get started.
Your Psychology And Yourself: Lost In The Middle Of Nowhere
When you start trading, you will probably feel infuriated with every loss you make. The chances are that you will try to blame the market itself and not take any responsibility yourself. The problem is that you don't really know what you will do next, until you actually do it. And then... it's too late. You have probably scored a loss that might have had a strong impact on your account. Keep repeating the same mistake, and you will soon be afraid of taking any position - that's what we, traders, call "paralysis by analysis". That will put you into a spiral of doom that is hard to get out from.
Lack Of Knowledge
You've opened your first demo account and you've been blessed by Lady Luck with a 20% ROI (return on investment) on the same day. You probably think you know it all, don't you? Well, unfortunately, the truth is that you don't. The problem that new traders might be faced with is the lack of knowledge. There are so many things that should be stacked in order to make you profitable and yet many of them can't be learnt in the same day. Not even a month. A year? Yes, but only if you follow your trading plan religiously.
Bucket Shop Brokers
A broker's job is to make the access to financial markets available to smaller investors. But you always need to take a look at the bigger picture. Non-regulated brokers will cost you money. "Bucket shop" is a term used for fraudulent brokers. When we say "bucket shop" we indicate that we believe a broker is a fraud or scam. Unfortunately many traders have fallen victims to different unregulated bucket shops. The first thing a trader must decide is to trade with a fully regulated broker.
Social media plays an important role, today. For some it's just a recreational thing, others use it to keep updated with the worldwide news, but to most people it is just fun - the modern day equivalent of "gossip". Many people use it simply to tell their friends what they've been up to, post some photos of their holiday or describe how they spent their day.
You can also tell your Twitter and Facebook friends how your trade went. Social trading is not only a good way of sharing your personal opinion about a certain trade setup, but a great way to discover new knowledge and connect with the right people.
Unfortunately, many social accounts are fake. New traders might fall into the trap of following too many people and they will start to lose their focus. If you are a novice trader and follow people with no trading background at all, the chances are you will lose heavily.
Real Forex and CFD traders always stress the importance of complete pre-fact analyses before making a trade and that can take time, which might mean missing the window of opportunity. Social media really helps you filter out all those fake accounts.
Having so many participants within a social Forex and CFD trading network, the analyses can be easily shared, simplifying the important decision you take and making it less time consuming, especially for new traders.
Day trading Is Not Investing
Day traders sit in front of computer screens and look for a pair that is either moving up or down in value. They want to ride the momentum of the pair and get out of it before it changes its course. Day trading is momentum trading. True day traders do not own any stocks or pairs over the weekend because of the extreme risk that prices will change radically from one day to the next, leading to large losses. Day trading is one of the most popular ways of earning profit, but new traders should understand that the Holy Grail is called "money management".
Forgetting The Tripod Of Successful Trading
Source: Nenad Kerkez
Successful trading can only be achieved if traders apply the tripod of successful trading, properly. Unfortunately, for many new traders, the hidden danger of not knowing this beforehand will make them lose their initial deposits.
I hope that this article will help many new and aspiring traders. If you have anything to add, please comment in the section below.
Cheers and safe trading,