Intraday trading on the Forex market using leverage carries a number of risks. There are several typical patterns of behavior of an intraday trader, leading, ultimately, to complete failure. There are 5 main mistakes made by traders that significantly reduce the level of profit. These mistakes can be avoided if you adhere to certain strategies and use your knowledge correctly.
The most common mistake traders make is position averaging. Almost every trader at a certain point in his trading activity resorts to this erroneous technique. The main problem of position averaging is “trapping” a trader for a losing position, as a result of which he loses not only money but also time. In most cases, it is more profitable to close a position and open a new deal in the right direction than to try to “sit out the losses”. An equally important problem is the fact that to compensate for large losses arising from averaging a position, a much larger percentage is required. If a trader loses 50% of his capital, he needs to double to return to the previous level. Large one-time losses can permanently undermine the potential growth of the trader’s capital. In some cases, averaging can make a profit, however, ultimately,
Placing positions before the release of major news
Traders are aware of the impact of upcoming economic news on exchange rates and the exact time of their release but often can not predict the subsequent reaction of the market. Additional statements, changes in the values of indicators and other related news can provoke extremely illogical market movements. At the time of the release of serious news, there is often a surge in volatility as a result, the market absorbs the stops of both sellers and buyers. The actions of traders, in this case, are impulsive and lead to the formation of a sawtooth chart, after which a real trend is formed (if formed). It is for the above reasons that a trader’s opening a position before major news releases significantly reduce his chances of success. There is no easy money on the Forex market; traders who hope for easy earnings often suffer large losses.
Opening a position immediately after the release of major news
The release of major news provokes serious market movements, from which, as it seems to traders, it is easy to collect a few points arrived. However, if you do not adhere to a previously drawn up plan, entering the market immediately after the release of major news can be as unprofitable as placing a position before the news release. The release of news in the face of a lack of liquidity may entail the formation of sawtooth market movements. In this situation, a profitable position in a few minutes can turn into a loss-making one. Market fluctuations can cause a trader to open several times seemingly profitable positions, which, ultimately, bring all the growing losses due to the triggering of the exposed stops. Intraday traders need to wait for the decline in volatility and the complete formation of the trend after the announcement of the news. This strategy allows you to more accurately determine the main trend, avoid problems associated with volatility, Trading on the news ).
The risk of more than 1% of equity.
Using excessively risky positions does not guarantee high returns. Almost all traders who risk most of their capital, eventually go out of the market bankrupt. The general rule for all traders in the Forex market is to use stop-loss so that losses on an open transaction do not exceed 1% of the account balance. Professional traders often risk a much smaller share of their capital. Intraday traders should pay special attention to the rules of risk management and risk no more than 1% of the amount of capital, or with an amount not exceeding the average daily profit for the last 30 days. Thus, if the trader’s capital is $ 50,000, he must limit his daily losses to $ 500; similarly, if the average daily profit of a trader is $ 100, his daily losses should not exceed $ 100. The purpose of risk management is to prevent losses that cause serious damage to the capital of the trader. Loss taking leverage on Forex: a double-edged sword ).
Traders carry out trading operations in accordance with their personal expectations, which may not be true. The trader can believe as much as necessary that the market will turn around, but this does not happen, and it incurs losses. Market movements often do not lend themselves to the logic that the trader relies on, and his judgments turn out to be erroneous.
The best way to deal with unrealistic expectations is to use a tight trading plan . If a trading plan brings a stable profit, do not change it – thanks to leverage, even a small income can significantly increase your capital. Be satisfied with what the market offers. Over time, as capital grows, you will be able to increase your position, and this will bring you additional profit. All-new strategies must be tested on small amounts before using them to maximize profits. When carrying out intraday trading, the trader needs to divide the entire trading day into different time periods. After the opening of the trading day and before its closing, the markets are the most volatile, therefore, during these periods of time, strategies should be used to capitalize on strong movements. During the trading day, until its closure, the markets behave much more calmly, so the strategy used should be less aggressive and more adapted to a calm market. Accept what the market offers you for certain periods of time, and do not expect super-profits from the trading strategy used.
There are 5 of the most common trading errors, which are taken hostage by intraday traders, and which can be avoided by using alternative strategies. Instead of averaging positions, traders are advised to quickly close losing trades in accordance with a pre-developed plan. During the news release, you must refrain from any action until the volatility dips. The risk should be constantly monitored – the loss of one day should be offset by profits earned on the next day. The trader must monitor his expectations and take advantage of what the market offers him. Understanding the presence of hidden problems and their competent elimination contributes to the successful trading of the trader.