Forex is the world’s most accessible market for day traders due to its low entry barriers. All you need is only a computer, a stable internet connection, and a few dollars to start. Yet, that only gives you a chance to start forex day trading, not making huge profit out of it. To make a huge profit you need to avoid these Forex day trader mistakes.
Stop trading, if you keep losing
Every time you trade, keep your eyes on your win rate and reward/risk ratio. A win rate shows the percentage of your winning rate. For instance, if you have won 70 trades from 100 trades you have made, then your winning rate is 70%.
For day traders, they need to maintain it above 50%. Meanwhile, the reward ratio is the number of your winning trades relative to those you lose on an average trade. For instance, if your average losing trade is $40 and your winning trades are $70, then your reward ratio is $70/$40 = 1.75.
Ideally, a day trader has to keep his reward/risk ratio above 1.25 or 1.
As a day trader, always try to win more than 50% and offer a better than 1.25 reward/risk ratio.
Do not trade without a stop loss
Make sure you have a stop-loss order in each of your trade. It is an offsetting order to help you exit a trade every time the prices move against you.
This order lessens your loss.
Do not average down
Averaging down means you add to your position when the price moves against you. Traders usually average down because they mistakenly believe that the trend will reverse.
However, that is a dangerous move. That price can move against you for a longer time than you have expected. Thus, you can get exponentially larger loss.
Never go all in
Even you are sure that you have placed the best risk management strategy, you will get tempted to ignore it. You may take a much larger trade than you usually do.
You may lose some trades in a row or you may trade very well lately, thus, you make bigger trade. But, remember to always stick on your 1% risk per trade and your 3% risk per day.
Do not trade off fundamental or economic data
Many tell us that news can tell you the economic condition of a particular country or currency. However, that fundamental outlook should not be important for your day trading.
Bad investments can go up temporarily, at the same time good investment can also go down temporarily. For that short term price movements, fundamentals have nothing to do. Thus, ignore them and focus on your trading plan and strategy instead.