Day traders open and close their trading positions on the same day. According to Dummies, day trading is definitely not for everyone because it’s difficult, and most day traders lose money. Moreover, day traders tend to make some common mistakes. They tend to open many positions on various currency pairs by relying on trading signals from technical indicators, price action, and fundamental news releases.
Trading time frames used are usually between 15 minutes to 1 hour. Those who have experienced the daily trading can be profitable. However, or beginners or who have not enough experience in the long term, day trading can potentially cause losing trade.
5 day traders common mistakes are often made day traders, that is:
Averaging down
Day traders often trap in averaging down or open the same new position when the previous position is experiencing loss. Although it might not have been planned at first, it was finally done considering the determined daily profit target.
Unverified averaging down is gambling and more emotional. We need to consider the costs required to cover losses or drawdown that will occur later. The best way to avoid this is to work based on agreed risk management. Additionally, you do not have to open a new position if there is no signal.
Trapping position of fundamental news releases
Applying position traps is usually done with stop orders simultaneously at the time of important fundamental news released. Then, it may cause high volatility.
To avoid the volatility that is too high, the traders usually have set profit targets for each position. The risk of trading in this way is the possibility of a slippage (price jump). Thus, there is a possibility of getting a higher price from a pending buy order or lower than a pending sell order.
Open a position immediately after the release of fundamental news.
Usually, you do this way after failing on trapping. Whatever happens, the entry times of high volatility are very dangerous.
Besides the possibility of slippage, we also do not know about the effects of the newly released fundamental news.
To open a position, the trader usually waits about 30 minutes after the news release.
Setting the risk per trade is too large
Risk per trade that is too large does not mean that you will get a large profit. The day traders tend to trade with large lot sizes to obtain an adequate daily profit. It is recommended to set a maximum risk per day which is not more than 2% of the balance on the trading account.
Unrealistic profit expectations
The day traders also often determine reward ratios that are too high to pursue daily profit targets. At low time frame trading (under 4-hour), it tends to be a lot of noise, so you must be careful and realistic when determining the risk/reward ratio.
Read more: How to Know Whether Trading Suits You
