There are four main psychological pitfalls for newbie traders. If you want to become successful, you need to see them coming and stop them before they destroy your account.
Let’s take a look at each one:
The desire to be rich
Everyone wants to be rich and it is understandable. However, the desire to be rich manifests itself in many ways. The main ways are fear and greed and they inevitably lead to other problems.
Overtrading and poor money management are very popular among young traders who want to make a fortune fast. But Forex will not make you rich in the short term. It will likely take years before you are trading well enough to leave your day job.
You need to understand that Forex is a long-term career. If you just started trading last week and you plan to quit your job in six months, you probably chose the wrong industry.
2. Fear of losing
Success means having a lot of money. That is what most people believe nowadays. So losing money – the opposite of making money – means failure. That is why people are so afraid of losing.
Some newbies trade demo accounts never even summon the courage to open a live account or they start panicking whenever they enter a trade and end up making rash decisions.
However, losing money can teach some very important lessons. What is damaging is the fear of losing money.
You start following your emotions and make an emotion-based decision rather than a rational one. But the truth is you are going to lose money to the markets, it’s unavoidable. Every professional trader has lost money. Not every trade will be profitable. There are times, especially as a newbie, that you will be on the wrong side of a trade.
The only advice here is to pick yourself up and try again.
3. The need to be right
Some people cannot accept that they have taken a losing trade. They keep pushing the stop down in the hope that it would eventually turn around. The need to be right is an account killer.
4. Lack of discipline
A trader who lacks discipline can never make it in this business.
The main culprits are traders that are constantly tweaking and changing their trading methods. They do not realize that learning to trade a system efficiently takes time. These traders lack the discipline to stick to, and learn how to trade, a system. They try it for a week and when it does not work they jump to the next system or method. These people very often abandon a perfectly good trading method.
Every trading method has periods in which it performs below average. No matter how versatile a method is, it cannot perform at peak efficiency in all market conditions. A true trader has the discipline to stick it out through the hard times.