To Top

Looking To Start Forex Day Trading? Avoid These Costly Mistakes FIRST!

There are certain Forex day trading practices that can prove to be costly in the long run, but it is highly unlikely that a fellow trader would tell you why these practices are dangerously wrong. The stock trading market is fiercely competitive, and if you have adopted a wrong plan, it’s time you should review your strategy and choose a better one to get on the profit track again. If you are new into FX day trading, avoid these costly mistakes first.

Averaging Down

Traders often end up averaging down, though they do not want to do so when they start trading. What are the major downsides of averaging down? Well, when you are holding a losing position, you are not only sacrificing your money, but you are also unnecessarily wasting your time. Additionally, for the lost capital, you need a larger return on the remaining capital. For example, if you have lost 50% of your capital, you need 100% returns on your remaining capital.

Being Too Confident About Upcoming News

Both seasoned and new day traders often become overconfident about the conditions and economic factors that may affect the money market, and they make decisions based on these presumptions. For example, an overconfident trader may make his own predictions about the outcomes of the FOMC meeting. However, the actual outcomes may differ from his or her anticipated outcomes to a varying degree. Any trading decision based on this guesswork may have devastating effects.

Trading Immediately After An Economic Release

As soon as en economic release is published, many traders try to grab some easy PIPs (price interest point). There should be a strategy behind every trading decision. Trading right after an important economic update can be compared to placing a bet without knowing anything about the betting process. News announcements bring large swings in the money markets, and you need to understand that the stops during this period mostly depend on liquidity. Let the volatility die down a bit and then make your decisions.

Risking More Than One Percent Of Trading Capital

Taking too many risks might sound adventurous from a trader’s viewpoint, but it’s not actually so. Traders who risk a lot of money on each trade are more likely to lose. The thumb rule here is to risk no more than 1% of your total trading capital in a single trade. Always bear in mind that pro traders risk actually far less than 1% of their trading capital. Also, you need to set a daily day trading risk maximum which could be 1% or less of your capital or 1% of the average daily profit.

The root of all the mistakes described above is probably unrealistic expectation and lofty hopes. Keep in mind that the market is ruthless and does not care about what you expect from it. Therefore, the more you keep your expectations to a realistic level, the more chances of profit you have. As a new trader, you should also know the industry jargons and do some research online before actually starting to trade. You need a solid trading strategy first.

More in Financial Advice

You must be logged in to post a comment Login