7 Big Mistakes Forex Day Traders Make

May 05,2019 11:29   Source:ForexSQ

Forex, short for foreign exchange market, is one of the most accessible day trading markets. You literally need just a PC connected to the internet, the will to learn and succeed in trading, and a couple hundred dollars to begin your adventure.

However, besides will, traders or future traders will also need patience – and a lot of it. Why? Well, because forex trading doesn’t bring profit easily. In most cases, you will need the help of an ECN broker such as one from IC Markets – someone that will use electronic communication methods to help their clients access the currencies. They will also give you the education and content you need. Read their here

If you are a beginner, there are also some mistakes that you’ll want to keep an eye out for. As you will mostly try just to round up a profit, it is important to keep in mind the following big mistakes traders make so that you know when to stop or change your strategy.

If you keep on losing, you should stop trading

In order to figure out when you should stop trading, you have to keep an eye on two very important trading statistics – namely, the win rate and the risk/ reward ratio.

It is recommended that a day trader always maintains their win rate above 50%.

In terms of risk/ reward ratio, this should be above one, ideally above 1.25 in order to be a profitable trader. For example, if your average losing trades are around $50 and your winning trades are around $75, then your reward/ risk ratio is of 1.5.

In short, when your win rate or your risk/ reward ratio quickly declines, this is a sign for you to stop trading for the day and improve your strategy.

Trading Without a Stop Loss

Most traders, especially beginners, usually trade without having a stop loss. The latter is an offsetting order that gets you out of a certain trade if its price moves against you by a certain amount, specified by the trader.

By doing this, your loss is moderated, and you can move on to the next trade without being too affected by your previous loss.

Adding to a Losing Day Trade

Among various strategies, there’s one that is based on adding to a losing day trade. While, in some scenarios, this may prove profitable, it is still very dangerous and should be avoided.

The loss may be at a minimum when you first add to it, but the trade can evolve, the price can move against you, and you can end up with a larger loss than expected.

Risk Only What You Can Risk

In short, you should not be risking more than you can afford to lose. Before trading, you must have in mind exactly how much capital you are willing to put at risk with each trade.

Ideally, day traders should risk 1% or less of their total capital in a single trade.

Moreover, you should also set up a daily stop loss – for example, if you lose more than 3 or 4% of your capital in a single day, then you leave trading for the following day.

Trading Without a Plan

In order to increase the success of your day trading and of your trading strategy, you should come up with a written plan that specifies exactly when, what, and how you should be trading.

Without a plan, trading will feel pretty much like gambling and you may even find yourself at a loss when you were actually expecting a win/ profit. Take your plan and test it in demo accounts before trying it out with real money – if it doesn’t seem to be profitable, go back to the drawing board, so to say, and figure out another trading plan.

Choosing the Wrong Broker

One of the biggest trades you’ll ever make is depositing money with the wrong forex broker. While this may prove itself very beneficial to a day trader, there are plenty of them that don’t properly assess the trade in terms of management, financial status, or such.

Moreover, you can also get drawn inside a trading scam. Therefore, when choosing a broker, you really have to take all the time you need and do some extensive research beforehand in order to minimize your risk. Even before choosing an ECN broker, you might want to do proper research around them – and read some reviews as well.

Going All In

Clearly, one of the biggest mistakes a forex day trader can make is going all in – remember that we talked about a trading plan that should make you risk around 1% of your capital per trade.

You have to stick to that rule – you may risk it all in hopes of a turnaround or big wins, so to say, but if the risk doesn’t pay off, you are pretty much done trading.

Remember, risk only 1% per trade and stop at 3% of capital lost per day!

As you have noticed, most of these mistakes involve traders that risk too much when taking a certain decision. In order to be a successful trader and see profits round up every single day, you should always try to minimize the risk of your every single trade/ decision you make.

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