Nowadays day trading is very popular, in particular, because it allows you to minimize risks. Thereby intraday trading attracts newcomers to the market. They believe that constant monitoring of their trading platform will allow them to control the situation and avoid trouble, but intraday trading in Forex is difficult and requires a lot of skill. Reckless behavior in the market can result in large losses and reducing your balance to zero, even if the size of each trade is negligible.
Let us find out the Top 5 unforgivable day trading mistakes made by beginners.
Averaging into a trade position
The averaging strategy involves opening additional positions in the same direction when there is a losing trade. Thus, traders can get more profit with less price fluctuation.
In some situations, such a behavioral strategy can indeed be successful, but more often thoughtless averaging only causes a margin call, and in such a case, traders no longer pursue a goal to earn and have to focus on restoring their initial capital investment.
Intraday trading involves opening and closing hundreds of trades. The trader's capital is increased by repeatedly receiving small financial gains from each successful trade during the trading day. However, many novice traders succumb to psychological factors, believing that a few pips of profit are too small for one trade. Because of this, they increase the number of daily trades to a critical level.
Such behavior brings a positive result only in rare cases. Most often a trader faces losses, starts to get nervous, and further increases the number of trades, which contradicts every trading strategy. The “assembly line” strategy never works, and you are doomed to lose all your capital trading like this.
Those who spent a lot of time studying the biographies of the richest traders could not help but notice that many of them managed to get the lion's share of their capital when the world was undergoing fundamental changes. It is quite logical and really works, but relying solely on news resources and analysts' assumptions is quite unwise.
The Forex market has seen many traders who have focused on the Fed's interest rate. They believed that if the regulator lowered it, the dollar would fall, and if they raised the rate, the dollar would rise. In this case, you just need to place pending Buy Stop and Sell Stop orders to get a guaranteed profit. Unfortunately, this works more often in theory than in practice.
You should not forget that the market reaction is never unambiguous and it is impossible to predict it 100 percent. In addition, important macroeconomic indicators may be released simultaneously, or the market volatility will reach a new limit at the time of their publication, so requites and slippages are unlikely to allow traders to earn, even if they have gotten the trend right.
Unreasonable expectations are a problem for those novice traders who responsibly approached learning Forex. They take specialized courses, study specialized literature, attend seminars, talk in person with professional traders, therefore, when entering the real foreign exchange market, they feel very confident.
Indeed, people can be past masters of trading terminals, perfectly know their ways around technical indicators, get all the latest information in the financial world, and effectively put their knowledge into practice. However, being overly confident in their actions, traders forget one thing: Forex is incredibly volatile and changes every second. The importance of the above increases even more if you are a day trader.
What happens in the financial market is difficult to apply logic to, which is why there are great prospects here for a rapid increase in capital, but the risk of losing your capital just as quickly is no less real.
A distinguishing feature of intraday trading is small timeframes. In such a case, most technical indicators tend to show false signals that need to be properly handled. Some experienced traders are convinced that all the market noise is money, but in fact, it is extremely difficult, if not impossible, to make use of that noise within their strategies.
All traders determine their level of risk on their own. Many beginners fail to handle the pressure of losing regularly, not realizing that this is part of Forex, so they decide to increase the size of their trades to quickly earn money and recover the losses.
The average trader uses a stop loss of 1-2 percent of the capital. An aggressive behavioral strategy is when a trader risks up to 5 percent of the balance.
Seeing a 100% signal of success beginners find it difficult to stay cool, calm, and collected, so they mindlessly increase the size of each position. Given that intraday trading involves opening tens/hundreds of trades, you can lose your entire balance this way in a matter of minutes.
Unfortunately, we can talk for hours about the mistakes made by novice traders. Some mistakes are related to a lack of understanding and unwillingness to learn, others to overconfidence and inability to think clearly. In any case, mistakes are a priceless experience. What is important is that you interpret it correctly.
Mistakes are part of Forex. Nobody is safe from them. Success can only be achieved by those who strictly follow the chosen trading strategy and never deviate from it, even if the temptation to earn even more is very strong. Neglecting risks is something that can bring down both a novice and an experienced trader, so if you feel like you cannot handle yourself, it is better to turn to automated trading.
Unique robotic trading advisors always follow the algorithm, do not get tired, and monitor the market all the time. Most importantly, algorithmic trading methods allow the account holder to do more pleasant things while the robot trades in Forex entering only potentially profitable trades.