Forex day trading is a high leverage game. And there are certain practices or outright mistakes that can lead to a total wreckage of your LBLV Broker trading capital. In this article, we’ll tackle the most common forex day trading mistakes that you should avoid if you don’t want to fail in your trading career.
Averaging down forex trades
Traders usually commit the mistake of averaging down. Although they rarely intentionally do this, many traders do it just the same. There are several problems that averaging down spawns.
The first and the biggest problem is that you’re holding a losing position. You’re not only sacrificing money; you’re also wasting your precious time, when you could be placing your time and money on somewhere else that’s more profitable.
Also, a larger return is needed on your remaining capital to retrieve any lost capital from the initial losing trade. If a trader loses 50 percent of their capital , it will usually take 100 percent return to bring them back to the original capital level.
Pre-positioning trades for news
It’s common knowledge among traders LBLV Broker Review that news events move the market, although the direction is not known in advance. Thus, a trader may even be fairly confident that a news event will impact the markets.
Even then, traders wouldn’t be able to predict how the market will react to this already expected news. Other factors like additional comments, future guidance, and other sorts of indications can also make drastic and unpredictable market movements that can surprise a trader.
You also have to remember that as volatility sky rockets and all sorts of orders are hit in the market, stops are triggered on both sides. This often results in whipsaw-like action before a clear trend finally emerges.
Forex trades after news
In a similar manner, a news headline can hit the markets at any time and can cause aggressive movements. Although it appears like easy money to be reactionary and fetch some pips, if this is done in an untested way and without a solid trading plan, it can be just as devastating as trading before the news comes out.
Day traders should wait for volatility to ease and for a definitive trend to develop after news announcement. Doing this will lead to a fewer liquidity concerns and you can then manage risks more efficiently. Also, a more stable price direction is observable.
Risking more than 1 percent of capital on a single trade
The practice of taking on more than necessary risks does not always translate or equal to higher returns. Nearly all traders who risk large amounts of capital on single trades will eventually lose in the long run. A common rule is that a trader should risk, when it comes to the difference between entry and stop price, no more than 1 percent of capital on any single trade. Professional traders will usually risk far less than 1 percent of their trading capital.