In day trading Forex, what you do is as important as what you don’t do.
It’s difficult to get a clear picture of what has to happen for Forex trading success. There are a dizzying array of tips and tricks available. This creates a challenge regardless of the quality of the information.
The truth is that there’s a million ways to make money trading Forex and an infinite number of ways to lose.
So what can kill your account? Sometimes it can be something small. And then there are the big mistakes that never should have happened in the first place.
Let’s sidestep the most destructive of these potential Forex blunders. Here are 8 common mistakes to avoid when day trading Forex to keep your account safe.
Day Trading Forex Mistake #1: Be wary of anyone promising “no commissions”
Forex brokers like to sell the fact that they offer no-commissions trading. It’s a seductive promise.
It also hides the facts, like the offer of low-interest intro rates for a credit card. The credit card might not be the best thing for you. No-commissions trading may not be the best thing for you either.
Unknowing traders flock to these claims. They’ve heard commissions affect your trading profits, so the lower the better, right? Well, it’s not that simple.
Commissions do affect your profits. They are a cost of trading.
But what the brokers don’t like to point out is that the spread is also a cost. It’s a hidden one. Forex firms can offer no-commission-trading because they charge you through the spread.
Some spreads can be agreeable enough. Others are downright offensive.
So what should a wary (and intelligent) Forex trader do? Make sure you inspect the spread. It’s often the case that you’re better off paying commissions.
But if you do find a broker you like who charges on the spread make sure that it is a favorable one. Remember there are other ways to get better market opportunities. Don’t ignore the cost of spread when you see low commissions.
Day Trading Forex Mistake #2: Avoid trading before news releases
Counter-intuitive? Yes. Sound advice? Definitely.
Many traders take positions on anticipation of news. They have a hunch or have researched where a news release will drive the market. They think the market will react in a particular way to the upcoming news event.
This is common, yet it can be a dangerous way to trade.
Taking positions right before breaking news is even more dangerous in Forex. Spreads can widen fast and large gaps can form in price action.
You can miss your stop, or worse.
“Wait to see what direction the news takes the market.”
It may feel good to be right and be right in a big way. But it will feel as bad when you’re wrong. In the end, news release trading is adding volatility to your account.
If you know that news is coming, avoid the lead up to the release. There is plenty of time to trade after the news release. When the dust clears you can see what the market has actually done and plan your reaction.
Day Trading Forex Mistake #3: Pass up super high leverage offers
Brokerage firms love to offer up high leverage to Forex traders. It’s right up there with “no commissions” in the list of things they provide.
Who would want to give up the chance to trade positions hundreds of times the size of their account?
“A 1% move in the right direction could double your money”… At least that’s the way the thinking goes.
Trading requires proper planning and systematic controls to maximize the chances of success. The most capable traders use leverage with extreme caution. Even then they only use leverage when necessary.
Remember to keep things simple and safe. If you aren’t profiting without leverage, you are not likely to profit with leverage. Hold off on high leverage until you are certain of your strategy and use it only the necessary amount.
Day Trading Forex Mistake #4: Scrap scalping for longer timeframes
Scalping has a powerful allure. It can make a trader feel hands-on. Placing trades starts to feel as satisfying as playing a video game. Interactions are quick and outcomes give the illusion of control.
Avoid this destructive path at all costs.
“Skip the scalp. Your trading account will thank you for it.”
Remember, there’s already someone better at scalping than you. Those someones are the computer on the other side of your trade. You aren’t going to beat the computers at their game.
So if scalping is a bad idea, how should you trade?
Generate your success through adopting a longer intraday time frame. There are many minutes in a trading day. Waiting for the best setups pays and there’s never a rush to sell a profitable position.
Day Trading Forex Mistake #5: Don’t trade to keep the lights on
Many traders dream of trading for a living. In fact, the desire is so strong that they often ignore proper planning.
The detrimental shortcuts are easy to identify. How can you tell? One sign is that they have to profit right away to pay the bills.
Trading is about building up risk capital. The returns are never guaranteed and rarely in a straight line. It takes time to build your trading account, and if you keep drawing it down to pay for your lifestyle it never will.
Having to profit to make ends meet has devastating psychological effects. There are many stories of traders who could not handle the stress and dropped off early in their careers.
Don’t let this become you.
The best thing you can do for your long term success is to isolate your trading account. Manage your bills in a separate account for the best results in both worlds.
Day Trading Forex Mistake #6: Don’t average down
For most people the conventional thinking is that if something is a deal at $10, it’s a bargain at $9, and a steal at $8. Unfortunately, that’s not the way it works in trading. This disconnect is a source of massive pain for many traders.
“Losers Average Losers” are the famous words pinned to the office wall of the great Paul Tudor Jones. It’s great advice applicable to all traders.
Embracing reality when you are right and when you are wrong is a huge element in profitable trading. When traders average down, they are not accepting reality. They are waiting to be right while throwing more money down the well.
Averaging down is never part of a successful plan. If you are wrong, accept your stop loss and move on. If you are right, take your profits.
Make sure you adopt a pro-mindset when day trading Forex and never average down. Don’t hold onto and add to positions that are not going your way.
Day Trading Forex Mistake #7: Start without scaling
Many traders love the variety in trading. There’s buying, there’s buying more, there’s selling, there’s selling a part of a position – to mention a few. It can get complex and overwhelming. Even worse, it can obscure what’s working and what’s not.
Scaling positions up fast with aggressive leverage is an allure in day trading Forex. It’s also the path to losses and account draw-downs.
Position scaling in itself isn’t bad when it’s part of a responsible trading plan. But when starting out, it’s best to keep things simple and avoid it until you have proven profits.
Many of the best plans stay simple and never use scaling. If you’ve found something that works, don’t feel pressured to add position scaling.
Scaling in and out can sound interesting, rational and helpful. The truth is that most traders are better off sticking to a single entry and exit. It’s especially the case if the trader is still struggling to find something that works.
The bottom line is, start your Forex trading without scaling. There is plenty of time to incorporate it into your plan later. Wait until you are profitable and only then consider adding it.
Day Trading Forex Mistake #8: Never risk more than 1% of your account on a single trade
It’s one of the most repeated trading mantras that so often get ignored in practice. Since it gets ignored most of the time, I am going to repeat it again here.
The mantra is:
“Do not risk any more than 1% of account size on any given trade.”
Unsuccessful traders ignore this mantra because it doesn’t sound glamorous. Even worse, many don’t know how to find opportunities that meet the criteria.
Often they feel they have to risk a higher percentage due to their account size. A trader would need $10,00 to take a $100 risk while adhering to this rule. To some, this is disappointing.
“Follow the 1% risk rule in your trading.”
For those who are day trading Forex, it is even more important to keep the 1% of account size risk model in mind.
Traders are often drawn to Forex due to the ability to start with a small account size. This can be a great advantage but it can also set up a dangerous situation. The low starting size can build temptation to risk a higher percentage per trade.
A huge advantage of trading Forex is the flexibility. You can generate your desired risk percentage with any account size. Got $10 to risk? The Forex market has that opportunity waiting for you.
Use the flexibility of Forex to benefit your trading. Thrive with the rule that defines the pros – never risk more than 1% of your account size.
For more day trading techniques, tools & strategies, check out these articles:
- Top 10 Tips For Day Trading Success
- 11 Things I Wish I Knew Before I Started Day Trading Stocks
- 5 Questions To Ask Before You Start Day Trading For A Living
Make your journey smoother by avoiding these 8 Forex day trading mistakes.
Do you know someone day trading Forex? Do you know anyone who wants to? Share this post using the buttons below!