There are few small yet important factors which traders should keep in mind while trading Forex, particularly for novice traders.

1. Start small and grow with experience

“Big money attracts big profits.” This statement is the biggest trap that a novice trader can fall into. It definitely is true for experienced traders who have a hold on the market. However, novice traders are not advised to enter the market
with large sums of money. Inexperienced traders should play in the market with small amounts of capital so that their losses, if any, will be limited and the gain in terms of experience is high.

2. Don’t play with huge leverage

“The more leverage you use (greed), the more fearful you become (fear), which ultimately results in wrong decisions.”

In the forex market, leverage is typically high and can become a burden for the novice trader. As novices are attracted by quick, large profits, they fall in the trap of trading with high leverage which comes back to bite them as a trade turns the wrong way.

3. No Speculative Trading or overtrade

Speculative trading is very harmful for both new traders as well as for those who have a lot of experience in the market. For novice traders, given the lack of knowledge about the market, acting on instinct or ‘tips’ from unreliable sources can
be very harmful. However, trading on non-quantifiable metrics can be extremely harmful for even experienced traders.

4. Do your proper research before taking an order.

Do your homework! This goes completely opposite to speculative trading. It is important to understand fundamentals and the general technical characteristics of the forex contract, before entering a trade.

Analysis is the first thing that every trader should do before taking any position. Traders must have a clear idea why he/she is buying; whether on the basis of the fundamental analysis or on the basis of the technical analysis, or purely based on a ‘he said, she said’.

5. Decide your stop loss and profit target

Always cut your losses and let your profits run- financial trading can never make good of emotions. A novice trader in particular, can become very attached to an instrument or position and refuse to cancel out a trade that’s not yielding positive
returns. Traders must define their profit target and stop loss ahead of the trade. After taking the position, they must follow discipline and do things according to their trading plan.

6. Always keep your trading history

Traders should always maintain their trading history, so that they can easily refer to it to learn from their previous mistakes and also for understanding future trends.

“Plan your trade and trade your plan”

After conducting thorough analysis, it is important to make a trading plan, covering not only entry and exit points, but also the amount of money to be thrown into the ring. Losses made with a good plan are far better for novice traders than making profits with speculative trades. In the long term, trading with a good plan will yield positive results.

Thus, remember they key tenets of trading- start small, plan your trades, research before you leap and don’t get too tempted by leverage!