Avoidable Mistakes Forex Day Traders Make

Your success depends on not doing ….

The forex markets have a low barrier to entry, which makes them one of the world’s most active markets.

If you have a computer, an internet connection, and a few hundred dollars, you should be able to start day trading.

Easy Entry Doesn’t mean Easy Profits

There are two trading statistics to keep a close eye on Your win rate and risk-reward ratio.

Your win rate is how many trades you win, expressed as a percentage. For example, if you win 60 trades out of 100, your win rate is 60%. A day trader should work to maintain a win rate above 50%.

Your reward-risk ratio is how much you win relative to how much you lose on an average trade. If your average losing trades are $50 and your winning trades are $75, your reward-risk ratio is $75/$50=1.5. A ratio of 1 indicates you’re losing as much as you’re winning.

Choose the Wrong Broker

Depositing money with a forex broker is the biggest trade you will make. If it is poorly managed, in financial trouble, or an outright trading scam, you could lose all your money. 

Take time in choosing a broker. There is a five-step process you should go through when deciding on which broker to use. You should consider what you want to accomplish, what a broker offers, and use reliable sources for broker referrals. Then, test the broker using small trades at first, and make sure the service is reliable.

Recommended Broker: https://bluwavefx.com/

Trading Without a Stop Loss

A stop loss is essential to your risk management strategy. Without a stop loss, you are taking on the possibility of losing your entire account in one trade.

You should have a stop-loss order for every forex trade you make. A stop-loss is limiting your risk per position.

Adding to a Losing Day Trade

To amend a losing trade, traders will increase positions or average down ultimately deviating from their trade plan.

All traders must learn to take losses!

Risking More Than You Can Afford to Lose

The key to part of your risk management strategy is to define how much capital you are willing to lose per trade. Traders should take into consideration their risk of ruin and have a good understanding of their statistics to properly determine this.

Going All In (Trying to Win It All Back)

Even when you have a risk management strategy in place, there will be times you will be tempted to ignore it.

You may have had a losing streak, which will make you want to earn some of it back. You may be on a winning streak and tempted to increase your risk. Either way being short-sighted will fail you in the end.

Trying To Ride The News

Often the price will move in both directions before picking a sustained direction. That means you are just as likely to be in a big losing trade within seconds of the news release as you are to be in a winning trade.

The spread also usually increases drastically during news events. Most traders are simply gambling during events like this and don’t have an actual strategy.

Trading Without a Plan

A trading plan outlines your strategy. It defines the parameters used to enter a trade, the rules of exiting, trade management, and risk management. It defines exactly why you will do in the markets.