Over the course of two years, I have seen numerous Nigerians flock into the financial market, forex trading to be precise and most of them got their hands burnt. Despite the fact that trillions of dollar exchange hands daily in the forex market. What could be the cause? Is there anything they are not doing right? Or a principle rule they fail to apply in there trading career.
In this article, we will examine 5 common mistakes that Nigerian forex traders are making that keep making them to lose money while trading instead of when they should be making it big from trading.
Below are the 5 common mistakes Nigerians make when trading forex
Lack of Education
What is forex? What are trends and candle sticks? Many new traders cannot answer these simple questions that’s because they lack the basic knowledge of forex. Imagine if a civil engineer doesn’t know the basic terms associated with building a bungalow, how do you then expect him to erect or supervise the construction of one, without failing or endangering lives.
The same concept above applies to forex trading and forex traders. The number one thing you must do before you start being profitable in forex trading is by reading up books and watching video about forex and how the market forms and move.
Many people do not even take forex to be anything that is, they barely give it enough attention or time. Then they expect to buy their dream cars and build a luxury house from the profit they make from trading forex.
Get Rich Quick Syndrome
The second reason why people fail is because they have this “mind set” that forex is a “get rich quick” scheme and anybody can make it without hustle. This fake and misleading thought/mind set is most times caused by forex educators (those that teach forex or tutor) newbies or forex presenter during fore-related seminars.
I remember one seminar I attended in Port Harcourt city, the presenter was speaking on how profitable forex is and how people like Warren Buffet and George Saros are making billions of dollar from the financial market and I saw how people we all smiling and clapping their hands, eager to start trading immediately without following the necessary steps such as getting the relevant knowledge required.
Though the teacher was right by saying warren buffet and George Saros makes Billions from the financial market, he made it look that something that just happen overnight, he fail to tell them how these people started, to where they are today. Each of those people started small in their respective ways, while growing and that what each forex traders should do by starting small and growing over time and not looking for how to make millions of naira overnight.
No Proper Risk/Money Management
Most forex traders may know one or two about the forex market but the still don’t apply the principal of money and risk management.
To fully understand this I have to give an example.
Trader A, trades currencies in the forex market with a $100 account, in order for his account to still be in good shape and not to lost everything, he has to apply a good risk and money management.
Whenever he places a trade, he has to use a small lot (contract size) –that’s applying a good risk management
When he enters the trade he has to put his stop loss and take profit. Using a good risk to reward ratio –that’s applying a good money management. (see the next 2 points for the explanation of what a risk to reward ratio is)
To people who haven’t traded before this might be confusing, but to existing traders they should have understood the concept.
The more risk you take, the more money you would make (that is if everything go as planned) but if not you will also lose more money. When trading you need to make sure your capital is save (that’s why stop loss and take profit) comes in place and must be used.
But a lot of traders neglect these things either because of ignorance or they don’t have any idea of how these things work.
This mistake seems common but is very dangerous to traders and that why most forex traders and lost their money.
Over Trading and Impatience
In one of the post I wrote I gave a good example of how over trading can destroy your account fast before you realize it, you can read it here Why You Should Stop Arguing With The Market If You Want To Be Profitable In Forex.
Just as the name implies, this involve trading regularly on lower time frames, because of the frequent trading, traders are unable to understand the market structure and thus make them to lose much often.
Impatience on the other hand makes traders not to wait for a particular trade set up to form or to wait for the right time before entering into a buy or a sell trade. Over trading and being impatience as well as being greedy all contribute in making traders fail in there trading career.
Instead traders ought to be looking at the higher time frame this help to reduce over trading to the minimum level as well as reduce one being impatient to trade, because “the higher the time frame the longer period one has to wait for a candle stick to form”.
Risk to Reward Ratio
The risk and reward ratio are mainly used when setting up Take Profit and Stop Loss, in your trading terminal.
Stop loss is the level or price, which you set in your trading platform indicating that, when current market price moves against you to a certain degree your looses will be closed up, so that it will not -overwhelm your trading balance. While Take Profit is the reverse of Stop Loss except that it closes your profit at the price or level which you are satisfied with.
In other to always make sure you stay profitable in forex trading without risking too much, you need to have a good risk to reward ratio.
Let me give an example so that you would understand more about this risk to reward ratio and how they are used. ‘if you want to use a risk to reward of 1:3 and you entered into a trade and decided to use a stop loss of 20 pips then it means, your take profit will be 60 pips” with that, the risk to reward ratio is 1:3 let me explain on how it work.
With a risk to reward ratio of 1:3, it means for every profit you make (1) it will compensate or cover up three (3) of your losses. We don’t know how future trades might end up becoming. There is a possibility that you would encounter a loss for a certain period of time and there are some times that you would make profit, but the goal is that the profit should always be able to cover up for the losses made. If you make 10 losses, using a risk to reward ratio of 1:3, with 5 profitable trades you would have covered the total 10 losses and still be in profit.
In summary, there are still other reasons that makes Nigerian who trade forex to fail in trading forex apart from the ones I have just mentioned above. A good percentage of Nigerians sees anything associated to online as scam and fraudulent and they never want to engage with it.
While some trade forex ignorantly and are looking for the Holy Gail, am sorry to burst your buddle there is no Holy Gail or the easy short cut to being profitable in forex.
I always advise Nigerians that trade forex to always aim at making 10-20% of their account and sometimes lower to 5% every month with such a strategy and steady growth, it because quite easy in slowly growing their account.
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