New forex traders can learn from their mistakes

If you never do something wrong, then you never learn how to do it right. It is said there’s no teacher like experience but we only learn from experience if we learn from our mistakes. And while beginner’s luck can get you so far, it won’t help you to understand what it is you’re doing, or enable you to get better at doing it.

Forex trading is an example of a field where beginners often have a run of success despite their inexperience. Buying and selling foreign currency pairs can seem deceptively simple, and it’s possible to carry on for a reasonable amount of time under the illusion that this is indeed the case. It’s when you start making more losing trades than winning ones that you’re forced to understand how trading works and to start becoming a better trader.

Stick to the plan

First of all, it’s worth looking at some of the common mistakes that new traders make and how they can avoid them. One of the worst errors is to deviate from your previously worked-out trading plan, or worse, to start trading without making a plan at all.

By doing that, you’re not trading at all: you’re gambling! Like all gamblers, eventually, your luck will run out, along with your money. Most new traders working without a plan go broke and don’t make a comeback.

A trading plan should include a strict budget and money management plan, as well as a strategy to follow. Never risk more than 3% of your total capital on a single trade, no matter how tempting it might be. In most cases, stick to a maximum of 1-2%. That way, you can control your losses.

Get an education

There are many resources available to learn about forex training, so use them. Read articles and books, watch webinars and enrol on a forex trading course. Not educating yourself about how forex trading works before starting yourself is equivalent to going in blind. You should understand the technical jargon, know how to read charts and use analytical tools, and be up to date on the world of economy and finance generally.

Be disciplined

So many beginners’ trading mistakes can be attributed to a lack of discipline. Make use of stop losses, and don’t move them once they’ve been set. Don’t double down on a losing trade: know when to cut your losses and exit swiftly. Don’t start margin trading with more leverage than you can handle, and don’t let your emotions rule your head. Keep your personal financial worries separate from your trading affairs.

Start with a demo account

The painless way to learn from your mistakes is to start trading using a demo account. Many forex brokers offer them, and they allow you to test out your strategy and gain experience without actually risking your own money. Of course, you won’t be able to make any money either. But a few months trading on a demo account will help you to stay in profit when you start trading for real.

Analyse your errors

When you lose money on a trade, don’t just move on and put it behind you as quickly as possible. Ask yourself what went wrong. It’s possible that you were just unlucky, or lost money through no fault of your own. But it’s important to be scrupulously honest about your mistakes and to analyse them if you want to avoid making them again.

Work out exactly what your mistake was and write it down, in as much detail as possible. Next, write down how you can avoid making that mistake in the future. You not only need to understand what you should have done but why you didn’t do it. What were the circumstances or limitations holding you back? Did you let your heart rule your head, or did you misunderstand the situation? Learning from your mistakes is also about knowing yourself and having a clear grasp of your strengths and weaknesses.

Finally, one of the best things you can do as a new trader is to follow those who have more experience than you. Analyse their strategies, even copy them, and see what it is that makes them successful traders. Of course, you will still have to make mistakes of your own. But stick to your trading plan, only adjusting it according to the lessons experience has taught you. As your success to failure rate improves, be grateful for the mistakes you made early on that made you a better trader all round.