If you’re new to trading, chances are you’ve already made this mistake, or you’re about to. It’s the one thing that wipes out more accounts than any technical pattern, indicator, or “bad luck.”
Just jump in
It can feel natural to jump into the market straight away. It’s an exciting new world for you and you think you’ll be able to learn by just getting stuck in.
The barrier to entry these days is very low and this gives you a sense of being able to learn by being active. At first the low deposit is fine, but when you consistently lose this over and over again, it can become a bigger problem.
When you don’t have a strategy, process or experience, every trade becomes an emotional battle, trying to get your money back.
Why It Can Be Damaging
Trading with real money before you’re ready can expose you to risks that can prevent your growth before you get going.
The first is general market risk, the flows of the market that you will not yet understand. Now some traders can get lucky, but it's rare. I once remember a very popular forex news website interviewing a young trader that made over $100,000 in a few days buying oil after covid. During the interview the trader spoke about losing thousands of dollars first before it came to fruition because he didn’t understand the market mechanics. He got lucky.
The next is emotional risk. Now this one will come on early as you begin to feel the fear, greed, FOMO, revenge trading…all the emotions which will be amplified because you're risking your hard earned cash.
A combination of these two risks is why the percentage of traders failing sit somewhere between 70-95%.
Think about it
This might be rich coming from me, the trader who jumped in with two feet opening a live account and ran with it. But I come from a place of experience. Looking back, if you asked me what I would have done differently, I would have said something like, start with a demo account. Learn about why the markets move and what the market mechanics are.
Think of it like this, a professional football player prepares all week for a 90 minute competitive game. Before this game they will review how they played the game before, review the opposition, identify a strategy, train all week.
That’s how I view the market, prepare, plan and execute.
Trading with demo accounts gives you the luxury to learn in a real market environment with no risk, and it should be used as a tool to understand the why.