As you may well know, the forex market can be accessed very easily if you are planning for an Online Investment. If you have a computer, an internet connection, and some bulk of money, it’s possible for you to trade. However, taking profits is the goal, and that’s where the problems happen. Now, you want to avoid these problems. And you don’t want to commit mistakes. Do you know these mistakes? We’ll tell you 4 forex trading mistakes that you ought to avoid.
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Day Trading with Poor Rates
When you’re trading, you should keep close tabs on two important trading statistics: the win-rate and risk/reward ratio.
What is your win-rate? This is simply the number of trades that you win. This is usually written as a percentage. To illustrate, let’s say you won 400 out of your 800 trades. Your win-rate is 50 percent. If you plan to succeed in day trading, you want to keep that above 50 percent.
Meanwhile, you risk/reward ratio is the number of your wins relative to the number of your losses on an average trade. You may want to keep your reward/risk above 1, perhaps better if above 1.25.
If you can maintain a win-rate above 50 percent and risk/reward ratio above 1.25, you can consider yourself good. On the other hand, you can still be profitable if your risk/reward ratio is high while your win-rate is lower, and vice versa.
Not Using Stop Loss
This is basic: have a stop loss order every single forex day trade you make. Not familiar with stop loss? Well, it’s an offsetting order that allows you to automatically exit a trade when the price moves against you by a predetermined amount.
Why do you have to use stop loss orders? It’s because it will ensure your escape from a losing trade. Of course, you wouldn’t want to stay in a losing trade.
Lack of Risk Management
Now, this should be common sense. You’re trading money and you want to earn money. You want to have some plans to manage risks. You got to have some risk management strategy ready.
First, try to establish how much you’re willing to risk from your capital. Ideally, day traders should only risk 1 percent or less on any single trade. You have to put a stop loss order. That means the order will close out of the trade if you lose more than 1 percent of your trading capital.
Going for Broke on a Day Trade
You have to avoid ‘going all in.’ That’s the rule. There will always be a time when you will be tempted to ignore your risk management strategy and take a much longer trade. Reasons for doing so will vary, but remember that you should be disciplined enough to follow your strategy.
Stick to 1 percent risk per trade. You shouldn’t change that just because you’re feeling lucky or confident. Your confidence can be difficult to ignore, but you can. In other words, don’t let your emotions affect your trades. Don’t go for broke.
You want to avoid all these things if you want to become a successful day trader. There are still many other mistakes you have to avoid. The trick is to stick with your plan, and that plan should be clear and methodical. Trading isn’t a game of luck. It’s more of a discipline. And discipline dictates that you should avoid as many mistakes as you can.