Day trading in forex market is a full time job in itself. Retail traders play an important role in keeping the market liquid and active. But on average a lot of new retail traders lose more than they win in the early stages of their trading. There are some common mistakes that can be avoided and should be avoided if you are in the game to make money and build a career of your own.
Not exiting bad trades quickly: Trading comes with risk reward. For retail investor with lower capital, risks are sometimes too high, and positions runs out of money too quickly. Many investors want to make profit no matter what and continue to hold the positions until they get margin calls or they lose it all when position expires. When you are in the game, play by the rules. Have a plan and stick to it. If your position hits the stop loss, so be it. Do not let your previous loss impact your risk reward expectation for next trade because you are trying to recoup the losses. Remember you are here for a longer race.
Anticipate news outcome and take a position before the news: This is a pure gamble. Many investors can anticipate the news from Fed (interest rate stays the same, goes up or down), but how market would behave is illogical. Position taken before the news is more likely to hit stop loss than making you money unless you are a supercomputer. Stay away from pure gamble and let the trend stabilize before you put your money.
Leveraging more than 1% of capital on single trade: Leverage offers a great way to play it big. Even though leverage lets you shoot for higher reward, it opens you to a greater risk as well. Rule of thumb is, you should not bet more than 1% of your total capital on one trade. Professional traders do even less.
Not having a trading plan: Many retail traders are more influenced by their peers, social media than their own gut feeling or an expert’s advice. Make a trading plan, define time horizon and risk level for your strategy. It always helps to seek advice. Work with professionals and discuss your expectations. Plan and execution will save you from a lot of unforeseen risks. So do not shy away from asking for help from an experienced adviso
Behavioral finance: Human emotions, excitement and fear play a bigger role in world of trading than anything else discussed above. Unless you are a trader with Midas touch or you have seen market for 25 years, you are bound to lose if you let your emotions play the game. But at the same time, do not let robots play it for you either. You are trading because you know you can do better than a robot. Practice with demo accounts, start low, identify trusted advisors, and manage risks well. These are the simple yet not so simple practices to be a winner. Remember, you are here for a longer run.