In the world of forex trading, there are habits that can lead to a complete wipeout of capital. There are some very common mistakes that day traders commit while they are trying to rack up their returns.
In this article, we will talk about the mistakes that can potentially devastate your trading career. You can avoid these mistakes with just the right knowledge, discipline, and approach. If you don’t want to fall for such mistakes, read on!
Averaging down on the trades
Traders usually come across the practice of averaging down. It is seldom intentional or deliberate, but they fall for it just the same. There are several problems that can arise because of averaging down in the forex market.
The key problem is that a losing position is being held. This does not only make you sacrifice some money, but you also sacrifice time, which could have been placed on better positions.
Second, a larger return is needed on your remaining capital to retrieve any capital loss from the initial losing trade. When you lose large chunks of money on single trades, you can cripple you capital growth for extended periods of time.
Pre-positioning Forex trades for news
Smart traders know that news usually move the market, although the direction cannot be really known in advance. Thus, you as a trader can be fairly confident that a news announcement will impact the markets.
Even then, you cannot possible accurately predict how the market will react to this already expected news. Other factors like additional statements, figures, or forward looking indications that are provided by news announcements can also make the movements of the market extremely illogical or at least unexpected.
There is also the mere fact that as volatility increases and all sorts of orders reach the market, stops are triggered on both directions. This usually leads to whip-saw actions before a trend finally emerges.
Overall, taking a position before a big news announcement can seriously wreck your chances for success.
Our own trading expectations are usually impose on the market, but we cannot expect it to act according to what we want. In simple words, the market doesn’t really care about individual expectations. You as a trader must accept that the market can be choppy, volatile, and trending in all cycles. It can even be very illogical. There isn’t any tried and true method for isolating each move and profiting.
The best way to keep from believing in unrealistic expectations, you must formulate a trading plan. If it yields steady results, then there is no need to change it. With forex leverage, even a small gain can become really large. As capital grows over time, a position size can be grown to bring in higher returns or new strategies can be implemented and tested.
During the intra-day trade, you must also accept what the markets offers at its various intervals. For instance, markets are usually more volatile at the start of the trading day. This means specific strategies that are used during the market open may not work later in the day.
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