Here are five Forex day trading mistakes to avoid. They include risking excessive capital on trades, having unrealistic expectations, and reacting impulsively to events that have an impact on the market. Others are averaging down on trade and prepositioning trade before news hits. Avoid these mistakes if you want to make loads of money in Forex day trading.
Remember, you have to invest your money and then make a considerable amount of profit within a single day. Knowing this market inside out is necessary before you can do that. You also need a substantial amount of capital. Finally, you need to examine the mistakes you ought to avoid. Here they are.
Risking Excessive Capital on Trades
A prudent investor knows that the key to success in Forex day trading is taking a calculated risk. Remember, the Forex market is an extremely volatile one. Determining the perfect measure of risk is the best move that you can make. For example, will you risk 50% of your capital on a single day? What will happen if you lose all of it? Recovering from this loss might take months or even years depending on the specific amount that you risked and your income streams.
Limit your risk to one-percent of your capital. Doing so would help you will earn some extra income to supplement your existing sources of revenue. Your capital levels will remain high as well.
Having Unrealistic Expectations
Many people believe that they will make thousands of dollars as soon as they start Forex day trading. They do not realize that this market works in specific ways. For example, it has short-term and long-term cycles. Volatility is an ever-present reality, and trends give you an idea of what will happen in future.
Understanding these things takes time and patience. Set some time aside to learn about them. You will gain a realistic picture of the Forex market if you do so. Devise a trading plan based on what you have learned, and then use it as an investment guide. Finally, adjust the plan whenever doing so is necessary.
Reacting Impulsively To Notable Events
The Lira had an impact on other European currencies including the Euro and the sterling pound. For example, the Euro sagged a bit when news of the Lira’s collapse emerged. However, this impact lasted for a brief moment because there were other market fundamentals at play. Unfortunately, impulsive day traders did not see it that way as reported by Admiral Markets. Instead, they sold as much as they could and as soon as they could. They lost a lot of money in the process, so avoid making this same mistake.
Remember, a currency may dip by 5% or so within the first hour of a significant news cycle. Then it could rise by over 10% before the day ends. That means selling it impulsively when you see it dip is a grave mistake.
Averaging Down on Trades
The act of averaging down seems sound, but it is not. More specifically, buying a currency whose price is already dipping exposes you to a significant amount of unnecessary risk. Remember, you are a Forex day trader. Waiting for the price to return to its original value and then surpass it takes weeks or years on average. In the meantime, losing your entire capital is possible because the price of the trade may remain stagnant or keep on falling.
Stop investing in something as soon as the price goes down. A smooth exit from the market is also an option if the trade keeps plummeting. Conversely, you can buy it if it adopts an upward trajectory.
Prepositioning Trade before News Hits
In this case, traders do something in anticipation of specific news. For example, a top-level meeting at the Federal Reserve will spark their interest. They will speculate on what steps the Fed will take. Will it increase the federal funds rate? Will it leave it as it is? Unfortunately, some traders venture a guess, and then they act upon it by selling or buying certain currencies beforehand. Their prediction is wrong in many cases. Consequently, these traders often lose loads of money because they made the wrong move. Do not make the same mistake. Avoid prepositioning trade before news hits.
This article is for information and educational purposes only and does not form a recommendation to invest or otherwise. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.