5 Mistakes You Should Avoid in Forex Day Trading

This easy-entry is not a promise of a quick profit, however. Before you take the plunge, make sure youre familiar with 5 mistakes that you should avoid.

1. Dont Trade if You Keep Losing

You have to keep a close eye on two trading statistics, namely, win-rate and risk-reward ration.

Win-rates shows how many traders you win by expressing as a percentage. For instance, if you win 60 trades out of 100, your win-rate is 60%. A day trader should work to maintain a win-rate above 50%.

Risk-reward shows how much you win relative to how much you lose on an average trade. If your average losing trades are $50 and your winning trades are $75, your reward-risk ratio is $75/$50=1.5. A ratio of 1 indicates you‘re losing as much as you’re winning.

Try to keep it simple though and develop your strategies, so that you wont be lost too much.

2. Trading without a Stop Loss

You should have a stop-loss order for every forex day trade you make. A stop-loss is an offsetting order that gets you out of a trade if the price moves against you by an amount you specify.

When you have a stop-loss order on your trades, you have taken a large portion of the risk out that investment. If you start taking losses on a trade, the stop-loss prevents you from losing more than you can handle.

3. Adding to a Losing Day Trade

You have to know that adding to losing day trade is a dangerous practice. The price can move against you for much longer than you expect, as your loss gets exponentially larger.

Instead, take a trade with the proper position size and set a stop-loss on the trade. If the price hits the stop-loss the trade will be closed at a smaller loss than it would have without it. There is no reason to risk more than that.

4. Risking More Than You Can Afford to Lose

The key part of your risk management strategy is to establish how much of your capital you are willing to risk on each trade. Day traders ideally should risk less than 1% of their capital on any single trade. That means that a stop-loss order closes out a trade if it results in no more than a 1% loss of trading capital.

Even if you lose multiple trades in a row only a small amount of your capital will be lost. At the same time, if you make more than 1% on each winning trade your losses are recouped.

On the other hand, you also have to be careful in day trading as it becomes an addiction if you let it. Set a strategy, so that you can be more discipline in a day trading.

5. Going All In

You might have had several losing trades in a row, which will make you want to earn back some of the losses. A winning streak can make you feel as if you cant lose. There will always be one trade promising such good returns, you are willing to risk almost everything on it.

Even if you have a risk management strategy in place, there will be times you will be tempted to ignore it and take a much larger trade than you normally do.

Resist temptation, stick to your risk management strategy and avoid going all in or adding to your position.