Trading forex CFDs can be lucrative, but it is also highly risky. The less you understand about the discipline, the more likely you are to lose money.

Here is a ‘bird’s eye’ view of the key mistakes new traders tend to make when they start forex CFD day trading, and how you can avoid them.

Not doing your research

There’s no way around this. If you want to be a successful trader, you will need to spend time and effort researching the forex market, and learning how to trade effectively.

The world’s best traders are lifetime learners:

If you’re less experienced, you might look at day traders and assume that because they’re focused on the short-term, there isn’t a lot of long-term thinking involved. Don’t be fooled!

The reason successful day traders can be decisive in the short-term is down to the huge amount of preparation and research they put in in advance.

If you want to achieve success, you’ll need to do the same.

We should be upfront here are say that if the idea of a huge amount of reading and research doesn’t appeal to you, it might be best for you to steer clear of trading altogether.

Not cutting losses

No trader has a perfect record. Even billionaire traders with penthouses overlooking Central Park have suffered losing trade after losing trade!

You will be the same. You will have losing trades. And when you’re less experienced, you’ll likely have more of them.

And that’s normal.

Trading is not about never losing. It’s about cutting losses before they get too big, letting winning trades run, and becoming profitable over time as a result. As legendary trader Ed Seykota put it:

One key mistakes beginner traders make is not using tools like stop losses, which can enable you to set in advance when you’re going to close out a losing trade.

Not only does this help you cut losses, it can also help you develop trading discipline, which is a vital part of becoming a successful trader.

You need to make sure that once you’ve developed your trading rules (more on that in a second) you follow them to the letter.

By automating this using stop losses (and ‘take profit’ tools) you can automate your rules during your first few trades, which can then help you develop and understand the discipline required.

Which brings us onto the next trading mistake…

Not having trading rules

The most successful traders have rules and a system worked out. And, more importantly, they follow the rules within that system.

“Where you want to be is always in control, never wishing, always trading, and always, first and foremost, protecting your butt.” Paul Tudor Jones

If you place completely different trades each time, with no real thought behind them other than just hoping your chosen trade will go up, you’re basically playing a guessing game.

This is a one-way ticket to trading failure.

If, though, you have a trading system that you understand and that is proven to be effective, you have a chance of getting results.

Unsurprisingly, developing a full trading system is a massive task, which is too big to cover in depth now. 

The key point, worth re-iterating, is that once you’ve developed your system, you must stick to the rules.

As soon as you start to break from the system, you’re starting to move into just guessing, which is dangerous territory.

Over-trading

Another key trading mistake is over-trading. Placing too many trades. Thinking that just by doing a lot, you’ll get a lot in return.

One of the greatest traders in history Bill Lipschutz once said:

It’s human nature to feel like doing more will lead to more results, and that’s even more the case in day trading.

But you shouldn’t confuse activity for achievement.

Once again, the best way to combat this is to develop a system with hard and fast rules.

If you have a rule that states you will only enter a trade if it hits 4 specific triggers, then a trade either fits in the system, or it doesn’t.

You might go three days without a single trade to make, then suddenly have four trades to make on day four. Or you might have a trade a day, like clockwork.

Either way, the rules decide what you do, not your need to feel like you’re not doing enough!

Not trading in a way that suits you

This is a purely practical point: all traders are unique. They will all have their own preferences when it comes to:

• Using leverage
• How much capital they’re prepared to risk
• Which assets they’ll trade
• How they feel about shorting
• What percentage they’re happy to lose before closing a trade

And a number of other factors.

It will take you time to understand what kind of trader you are, and what your preferences are. The only way to really learn this is to trade.

It’s not something you can ‘hypothetically’ know. You simply have to get into the markets, make some winning trades, making some losing trades, and over time get a better understanding of your own attitudes.

Remember, becoming a successful trader is a long-term discipline. Professional traders have spent years, and in many cases decades, learning their craft.

But once you start to understand your own comfort levels and your own preferences, stick to them.

Under-estimating risk

It is very easy for beginner traders to read a few success stories about billionaires and get carried away, not understanding that virtually no trader walks into the markets and starts making lots of money straight out.

You should never trade with money you can’t afford to lose. You should accept that in your first few months trading, you may lose more than you make.

In other words, respect the markets.

This is double the case if you’re planning to use leveraged tools like CFDs or spread-betting.

By using leverage, you magnify both your profits and your losses, and you can lose more than your initial investment.

It’s for this reason that the British Financial Conduct authority recommends only ever using a maximum of 10% of your capital in high-risk trades.

That way, you will never be put in a situation where a losing trade completely wipes your capital out.

We’re not saying any of this to discourage you, by the way. Trading can be a profitable – even lucrative – discipline. But if you don’t take risk very seriously, your chances of success are small.

Summary

Today, we’ve gone through the major mistakes traders make when day trading, including:

1. Not doing the research on their trades
2. Not developing a proper trading system, with rules
3. Over-trading
4. Not learning their own preferences
5. Under-estimating risk

Now, we’re going to show you how you can place your first-few day trades without risking any real money.

When you open a trading account with markets.com, you also get immediate access to a full CFD demo trading account, where you can practise placing CFD trades using artificial money.

This means you can take the time to get comfortable trading before you risk your own money, and then when you are ready to trade for real, you’ll be able to do so using the same platform you placed your practise trades on.

If you’d like to find out more, you can get started using the link below.