Serious money can be made if you know how to day trade Forex. For the uninformed, Forex refers to the Foreign Exchange Market—a market where the world’s currencies are traded. It is also called FX or currency market. As for a day trader, these are the guys who do the buying and selling in a given holding period. The exchanges or transactions only happen in the morning because the market closes at noon (hence the term ‘day trading’).
If you’re interested in spending your day Forex trading then this article is for you. We will give good advice on how you can start your career as a day trader. Consider this your introduction to day trading for beginners.
Day Trading Don’ts
We begin your Forex day trading crash course not with lessons on what to do, but with tips on what mistakes to avoid.
MISTAKE #1: Averaging Down
Averaging Down is a Forex trade strategy where the trader lowers the average entry price of a trade for fear of accepting a losing trade. By averaging down, contracts of a lower price are added into a trade. This move effectively lowers the average entry price of those two contracts packaged as one. By doing this, the trader is holding a losing position. Huge capital is lost when averaging down. And the trader will be hell bent on gaining back the losses in every other trade he makes.
MISTAKE #2: Acting Hastily Before News Announcements are Made
News events have a great effect on the market and can cause surges or drops in rates. When rumors of an impending news event come out, a lot of inexperienced traders jump the gun and make purchases or buying decisions based on pure speculation. This rookie move has the potential to cause the inexperienced trader huge losses.
MISTAKE #3: Joining the Bandwagon
As a corollary to number 2, this mistake is when news hits and the trader moves together with market to ride the wave of surges. But this can easily backfire because the market is known to swing back and forth. This volatility doesn’t manifest itself after some time. So it’s best to wait for the market to stabilize before making a trade.
MISTAKE #4: Risking Too Much Capital
In Forex trading, it’s been established that excessive risk can lead to excessive losses in the long run. There’s a rule of thumb for Forex day trading that no more than 1% of a trader’s capital should be risked for a single trade. It is therefore advised that traders don’t gamble too much on risking their capital for a single trade, no matter how good it seems on paper.
MISTAKE #5: Being Unrealistic
A day trader should cultivate the habit of being realistic. They need to understand that the market is volatile and can act in an illogical manner at times. By being realistic, a trader will do his best to become disciplined and not be swayed by emotions. They also need to realize that they cannot be winners in all their trades. They just need to make sure that their winning trades outnumber their losing ones.
The tips above should give you a clearer picture on how to day trade Forex. Avoid these five mistakes at all cost and you just might make a good living for yourself trading currencies.