Trading in Forex sometimes can be difficult. However, there is always a way to improve your day trading. Are you aware of these Forex Day Trading Mistakes?
AtoZMarkets – Whether you are a newbie in Forex or an experienced trader, we bet you have made some trading mistakes. Where some of them are not really significant, other mistakes must be avoided. Today, we talk about the key Forex Day Trading mistakes.
Avoid These 5 Forex Day Trading Mistakes
If you’re considering a career in Forex day trading, there are 5 trading mistakes you need to know about. In this article, we’ll discuss these mistakes and show you how to avoid them.
Mistake # 1: Averaging Down
Often, day traders will respond to adverse market movement by buying additional quantities of their asset at a lower price. This is called “averaging down,” and the reasoning behind it is to bring down the average price of the purchased asset.
Don’t average down. By doing so, you will find yourself holding a losing position when you should instead cut your losses and move on to something else. We’re not arguing that there’s no place for averaging down in Forex trading. There are, in fact, times when the strategy makes sense. However, too many day traders have lost vast sums of money using it. Time frames for day trades are short, meaning things move fast: grab your profits when you win, cut your losses when you lose.
Mistake # 2: Trying to Predict the News
Yes, political and economic news announcements move the markets, but few traders are able to know exactly how. Even if you’re confident that, say, the Federal Reserve will not, at its upcoming announcement, raise interest rates, there’s no way for you to know how the markets will react to the news.
The announcement from the Federal Reserve might be accompanied by additional statements that will move the markets in a direction you didn’t predict. Accordingly, don’t assume that an upcoming news announcement will trigger your desired direction. You’ll jeopardize your money if you do.
Mistake # 3: Trading Immediately After the News
The markets move aggressively after an important news announcement, as a result of which traders often assume that they’re about to make easy money. However, trading during such times requires a sound, regimented trading plan. Without one, traders are bound to lose money. Why? Because news announcements frequently trigger whipsaw-like movement in the markets, meaning that even a winning trade can become a losing trade within minutes. Remember, too, that the increased trading activity often lowers liquidity; if the liquidity is not there, your losses could trigger a margin call.
Easy money is a pipe dream. In order to make money as a day trader, you need a strategy. Take the time to build one before risking your money on something that may or may not happen.
Mistake # 4: Risking Too Much Money
In Forex day trading, a rule of thumb is not to risk more than 1% of available capital on a single trade. By following this rule, you will make sure that a losing trade will never put a significant dent in your account. Never risk what you cannot afford to lose.
Mistake # 5: Unrealistic Expectations
If you’re looking to make your fortune, à la George Soros, on a single trade, look elsewhere. Few traders achieve unimagined wealth through Forex trading. However, armed with a cool head and a trading strategy, you could achieve steady, consistent profits. Ask your broker to help you devise a trading strategy, test the strategy, and make necessary adjustments.
If the strategy yields results, stick to it; if it doesn’t, find another and test it out without risking too much money. When devising your trading strategy, keep in mind that you will have to adjust it as the day progresses, the reason being that the markets tend to be more volatile in the mornings and quieter in the evenings. Accept whatever the markets are doing and use your strategy accordingly.
Instead of risking your money by averaging down, cut your losses and move on to something else. Instead of trying to predict the news, sit back after a news announcement and wait for the volatility to subside. Instead of risking what you cannot afford to lose, be prudent. Instead of looking for that elusive fortune, look for ways to make steady profits.
Think we missed something? Did you know any of these Forex Day Trading Mistakes? Let us know in the comments section below.