Just a short few years ago around 2012 I inherited a large chunk of change from an affiliate marketing website I had sold to an American Investor.
There I was 24-yrs old & ready to conquer the world, besides If I can build & sell a successful multi-million dollar website, I sure as f#ck can master the art of FOREX TRADING!
My journey into this $3 trillion dollar a day industry had begun!
What is forex trading?
Online forex trading is where you speculate on the value of currency pairs. I.e. Is the Rand going to weaken or strengthen against the Euro. If you’re just starting out visit our section on forex trading.
“Your best teacher is your last mistake” – If you share this wisdom I hope you can learn from my 3 trading mistakes!
Mistake #1: Demo account
Throughout my learning curve of building a knowledgeable foundation & trying to master a consistent money making strategy I did not make use of a forex demo account.
Which if you haven’t already guessed it by now? Cost me-a-ton of REAL MONEY $150,000 to be exact.
You need the self-discipline to master a winning trading strategy on a demo account! If you can’t consistently win on a forex demo account over a period of 3-6 months QUIT!
Mistake #2: Trading Strategy (Risk / Reward)
How would you feel knowing that you can generate a profit only winning 30 or 40% of your trades? A solid risk-reward strategy achieves this for you.
Let’s take a risk-reward ratio of 1:5 which means you are willing to risk 20 pips to profit 100 pips. If each pip is worth $50 you are risking $1,000 to make a return of $5,000 on every trade.
The phenomenal part of a risk/reward ratio of 1:5 is that even if you only win ONE out of FIVE trades you still break even. That’s pretty awesome huh? A 20%-win rate to break even and If you win TWO out of FIVE trades you are already generating a $1,000 profit.
Do you see how a risk-reward ratio puts the odds in your favor? IMPLEMENT RISK-REWARD into your strategy!
Mistake #3: Hold My Losses Long, Cut My Profits Short
Hold my losses long
I can’t even begin to tell you the number of times my trades were in the red! approaching the stop-loss order 100 pips down the chart ready to close out.
Hope makes you do funny things, hope that the market is going to turn will make you do even funnier things.
Moving the stop-loss order further down is one of those funny things and before you know it you have lost 200 pips instead of the planned 100.
Cut my profits short
Many a times my trades were in the red they too were in the green, 30 to 40 pips up in profit. Man-oh-man does the fear kick-in “Let me take these profits off the table, before I lose them”.
The combination of those two factors resulted in my risk/reward ratio being completely off balance, which in this case was a ratio of 5:1. So If we use the same $50 a pip scenario, I would now be risking $10,000 to make a return of $2,000.
Do you see how psychological emotions can you effect your strategy?!
Also Taking into consideration the fact that I did not work at the JSE or have an MBA, my chances of winning were now better off at the CASINO!
The odds of playing black or red at a roulette table are 1:1 with a probability of 46.37%! PLEASE NOTE: I do not condone gambling.
To wrap it up…
If I did not make the initial mistake of not trading with a forex demo account, I would have realized pretty quickly that trading forex wasn’t for me.
Which would have probably saved me from my 6-month crusade to blow over $150k being a wanna be Wall Street trader.
So be DISCIPLINED enough to start on a Demo Account, Build a Solid Trading Strategy & Stick To It!
If you have any tips & advice for fellow traders feel free to leave it on the comments section below.