Most Common Mistakes of Forex Day Traders and Way to Avoid
Prepositioning for information/News
With Forex Day trading, the traders are sort of programmed to be familiar with the news happenings that will shake the market; but the direction is unknown beforehand. Many investors in Forex Day trading may even be quite certain of what a news broadcast maybe (the Federal Reserve will not or will raise interest rates for example) however, this information does not mean that the currency market will immediately react to the anticipated news. Most times, there are extra figures, statements, or innovative indications that have been announced in the news that can actually make Forex Day trading movements quite illogical.
Making a Trade Right after Listening to the News
It is no secret that when a news headline hits the currency market, then the market will begin to move in an aggressive manner. This may seem like really easy money to make. But if this is carried in an untested and non-strictly controlled manner without a rock-solid plan behind it, this is just as destructive as placing a bet on a gambling floor prior to when the news is broadcasted.
News broadcasts are most times known to cause a whipsaw-type action, this is due to short of liquidity and hair’s breadth turns in the report’s market assessment. Even trades that are “in the money” can rapidly turn, which will bring about colossal losses as great swings in the market happen back & forth. During these times, stops are actually dependent on liquidity which may not even be there – translation: losses may possibly be a lot more than anticipated.
The smart thing to do when it comes to Forex Day trading is to wait for the subsiding of the volatility period and for the development of a definitive trend after news broadcasts. There is likely to be little concerns about liquidity when this is done, risks can also be managed much more effectively and there could also be a steady price direction.
Having unrealistic expectations is perhaps the biggest issue with Forex Day trading investors. It is important to understand first and foremost that the market does not give a bean about what your expectations are. As a trader, it is important that you make your peace with the fact that the currency market can be pretty irrational. It can be irregular, unstable, and trending cycles can be short, medium & long term. It is not possible to successfully isolate every move and profit from it, and believing that you can only cause errors in judgment and frustrations.
One of the best ways that you can avoid having unrealistic expectations in Forex Day trading is to come up with a trading plan and stick to it. If the strategy that you have formulated yields stable results, then you should not change it – when it comes to Forex Day trading leverage, even little gains can turn huge! You should accept this as the market’s gift to you. As your capital begins to increase over a period of time, much higher dollar returns can be expected when the position size is increased. In addition to this, traders can also implement new strategies which are first tested and trusted with minimal capital. Then, if you see positive outcomes, you can put more capital into the Forex Day trading strategy.
As a trader, it is important that you learn to accept exactly what the market offers at various times of the day. The markets are known to be much more volatile near the open. Certain strategies can be utilized when the market opens, but these strategies may not work at the later part of the day. And as the trading day progresses, it can become pretty quiet and you may need to whip out another strategy.