Currency Day Trading – Top 5 Mistakes
Currency day trading can be a great way to make money, but you have to be careful to avoid certain mistakes, so as to maximize your profits and minimize your risk.
Here are some of the benefits and risks, as well as mistakes, Forex traders make when they engage in day trading.
What are the Benefits?
As a Forex trader, you can be extremely flexible. Unlike specific stock exchanges like the New York Stock Exchange, Forex is known as in “over-the-counter” market, which means that it’s not physically located anywhere. Instead, traders and brokers operate via the Internet and other high-speed telecommunication devices. That allows traders and brokers to interact and trade with each other 24 hours a day, five days a week, as long as the Forex market is open somewhere in the world (every day, 24 hours a day, excepting Saturdays and Sundays).
This is especially important for a short-term trader that wants to enter and exit the market at any time.
In addition, Forex trading is a great way to make profits, as long as you know what you’re doing. Of course, it’s also very risky, and you have to know how to manage those risks so as to maximize rewards — something beginning traders often don’t know enough about.
It’s also very easy to get involved in Forex. Many Forex brokers offer online accounts that you can set up with just a few clicks of your mouse. Do some practice with the demo account and you could be trading in a relatively short period of time.
What are the most common mistakes in Currency Day trading?
#1 – Not getting enough experience before trading with real money
The most significant mistake most day traders make, in fact, is that they don’t gain enough experience before they trade with real money. The simple fact is, you must know what you’re doing before you actually jump in with real money.
Of course, there’s a very easy way around this, which is to simply set up a demo account through your broker and then practice.
What you’ll need to learn when it comes to Forex is how to get into and out of trades at the right time so as to minimize your risk and make the most profit. Learn all you need to know about technical and fundamental analysis, placing orders, using Forex alerts, stop loss orders, and so on. All of this knowledge can be had simply by going online, learning your way around the market, and practicing for significant amount of time.
#2 – Trading from an emotional perspective, rather than from a practical, analytical perspective
One thing you should know before you ever get started in Forex is that everyone loses money sometimes; even the most successful traders do so. The profit comes in knowing how to get out of trades that are continuing to trend downward at the right time (instead of hanging on in hopes that you will make your money back), and getting in and out of trades that are trending upward at the right time, so that you maximize your profits and get out before they, too, trend downward.
Emotions have no place in day trading. In other words, do your research, establish your strategy, and then follow it. Don’t let your emotions keep you in trades that you should be getting out of, in other words.
#3 – Trading Money You Can’t Afford to Lose
It’s true that you can absolutely profit from currency day trading and that there is some risk involved no matter what you do. However, you should NEVER trade with money you can’t afford to lose. In other words, don’t trade with mortgage money, rent money, money for groceries, and so on. Instead, only trade with money that you have set aside and you can spend any way you wish.
#4 – Trying to become a full-time Forex day trader before you’re ready
So many traders crash and burn simply because they put everything into it. But the point with Forex is that you start small, learn, make mistakes, lose money (not too much of it if you’re smart), and then slowly, slowly, become expert enough that you actually begin to experience overall profit from your trades.
It’s true that some people do actually make a living as a day trader. However, that’s not true for most people. Most people do this as a hobby and keep a regular 9-to-5 job. It can be a very lucrative hobby, but don’t decide to “jump ship” with your regular job (and lose your insurance and other benefits besides) unless and until you’re absolutely sure you can make a living with Forex — and that includes making up for the benefits you are going to lose when you quit your full-time job.
#5 -Trading a Strategy That You Don’t Understand
Avoid trading a strategy without understanding how the trading plan works. What is the typical winning percentage? What is the biggest drawdown? In general, high winning percentage strategies have smaller average profits per trade. Lower winning percentage strategies might not have as many winners, but when you are a winner, you typically make it big.
In short, there are no shortcuts to becoming good at currency day trading, and there are no fairytales or “easy money” in Forex. You still have to do the work and the research to be a successful day trader, and you have to take things slow if you want to do things right.
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