Forex Day Trading Mistakes You Should Avoid
Forex day trading is one of the most popular forex strategies. This type of trading is short-term and does not allow the holding of a position overnight. Even with the popularity of the strategy there are still a number of mistakes that trader make. It is best that you know about these mistakes so you can avoid them in your trading.
Forex Day Trading and Averaging Down
A lot of traders stumble across the concept of averaging down. However, many of these traders do not use this correctly and end up losing more money than they stood to gain. There are actually a number of problems with averaging down with the main one being that you are keeping a losing position open. This not only sacrifices money but time as well.
When you average down a larger return is needed to make back the capital you have used. Losing the large amount of capital that most traders do with averaging down seriously affects the overall strategy and plan day traders work on. Averaging down may work a few times but it will eventually lead to lose and margin calls.
The best way to avoid this mistake is by avoiding averaging down. If you do decide to average down then you have to be very sure that the trend will turn on the trade.
Positioning Before the News
Day traders often trade around the reaction of news events. However, a mistake that many traders make is positioning before the news has been released. There is no way to know exactly how the market will react to the news. By place the position before the release traders are hoping that the market moves in the way they are expecting.
The risk that these traders face is not only that the market does not move as expected. There is also the risk that a surge in the opposite direct comes directly after the news hitting the traders stop losses. After this surge the trend may turn to what the trader was expecting but they no longer have the edge and will not make the profit they wanted.
To avoid this mistake you need to wait until after the news has been released to open you position.
Risking High Amounts of Capital
A lot of day traders feel that the short-term nature of their trades reduces the risks enough to ignore the 2% limit per trade. This 2% limit is a risk management strategy that stops a trader from risking more than 2% of their account on a single trade.
A lot of traders ignore this believing they can make more money without it. While this is true the point of risk management is to protect the trader when they are wrong. Having a risk management strategy ensures that no one day of trading affects the account enough to impact the overall trading strategy.
The best way to avoid this trap is to stick to your risk management plan. You need to take the time to calculate how much of your account you are risking and ensure it does not exceed 2% of your account.