Do You Have Sufficient Risk Capital?
As a newcomer to the world of Forex trading, you should know right off that trading comes with some significant risks. If you are an investor not willing to take calculated risks, then Forex trading may not be the right business for you.
Investing in Forex trading could see you lose your entire capital investment or in a worst case scenario you could lose more than your initial investment. That is why as a beginner to Forex, you need to get used to the term “Risk Capital”.
Your risk capital are funds invested in Forex that you can survive without. In order words, losing the money won't significantly affect your standard of living and financial stability. So if you do not have adequate risk capital, you really should not venture into Forex trading.
Now that you know where you stand with Forex trading from the get-go, you also need to know that you can lose all your risk capital if you engage in some risky activities during Forex trading. The CEO of Forex Forensics, Jason Maxfield will give you an insight into those five common errors that Forex day traders make while trying to boost their ROI, but ultimately results in them losing their risk capital or more.
With the proper education in Forex trading, financial discipline and the right Forex trading strategies; you will be able to avoid making these five common errors in Forex day trading. Check out the errors below as provided by Jason Maxfield.
1. The Issue Of Averaging Down
One common practice in Forex day trading is that of “Averaging Down”. In the Forex market, averaging down comes with its own peculiar problems. While many Forex traders really do not intend averaging down, they somehow end up engaging in it.
One major problem with this practice is that Forex traders tend to hold on to a losing position for far too long. In the process of doing so, they lose both time and money as their money could have been better served being invested in a much viable trading position.
Another issue with averaging down is that the trader would need a much larger ROI on their left-over capital just to recover the lost risk capital invested in the Forex trade that resulted in a loss. For example, if a Forex trader records a loss of 40% of their risk capital, the trader would require a 100% ROI in order to get back to the initial risk capital level.
You should know that losing a large amount of risk capital on a one-off trades or in one day of Forex trading can do some serious damage to the growth potential of your capital in the long-term. A Forex day trader is most likely to fall victim to the problems of average down as the limited space of time for trading really means that trading opportunities do not last long, and traders need to rapidly get out of bad Forex trades they are involved in.
2. Taking A Forex Trading Position Prior To A News Announcement (Maintaining A Completely Proactive Stance)
Forex day traders tend to make the common error of taking a Forex trading decision before a news announcement. Some traders tend to anticipate the Forex market reaction to the announcement of certain news items and based on this “guess work”, they take a trading decision before observing the effect the news announcement would actually have on the Forex charts when the news is eventually announced. This can lead to a significant loss of risk capital.
3. Taking A Forex Trading Decision Upon A News Announcement (Maintaining a Completely Reactionary Stance)
Some Forex day traders also heavily rely on the breaking of news and the reaction of the Forex trading market before taking a Forex trading decision. Just as engaging in Forex trading before a news announcement can be a risky venture, equally, trading only after a breaking news can be detrimental to your capital and growth potential.
Maintaining a reactionary stance may look like a smart way to snatch a few pips and make a quick buck. In reality, without a well thought out trading plan with the right Forex trading strategies you could end up in the same ship as trading prior to a news announcement.
One of the Forex trading strategies that day traders can adopt according to Jason Maxfield, is for them to exercise a bit of patience. Day traders should wait till a clear trend is established upon the breaking of a news item, this is usually after the volatility has subsided. If day traders do this, they would be able to establish a stable price path, better manage risks and avoid liquidity issues.
4. Taking Excessive Risks
Day traders are also prone to taking excessive risks. If you risk significant amounts of your risk capital on one-off Forex trades, you would most likely experience a loss of capital in the long-term. To avoid this risk, you avoid investing more than 1% of your capital on one-off Forex trading deals.
As a Forex beginner, you should know that even experienced and highly skilled Forex traders would usually risk less than 1% of their capital on every Forex trading deal.
One of the most feasible Forex trading strategies that you can adopt is to have and deploy a “Daily Risk Maximum”. Your daily risk maximum could amount to 1% of your capital or less. This is only sensible trading and gives you a cushion to absorb a loss of capital since it would only be a minute loss.
5. Having Far Fetched Forex Trading Goals
The Forex trading market can go from trendy to volatile in a matter of seconds. It would be unwise for Forex traders to have very lofty expectations before they even start trading. The Forex charts are unsympathetic to traders and so the traders should always really be pragmatic in their dealings.
To keep from having farfetched Forex trading goals, you should establish and deploy a Forex trading plan equipped with viable Forex trading strategies that will help keep you on the slow, but steady path of Forex trading success.
In Closing
The five common errors highlighted are the bane of many day traders, but with guidance and coaching, traders can learn to avoid making them. Formulating a trading plan that works for you is a good way of optimizing your Forex trading experience.
According to Jason Maxfield, averaging down can be avoided by day traders when they stop adding to a losing position, but instead sell and move on based on their preexisting exit strategy. Ultimately, a proper plan of action beforehand will help day traders excel in their Forex trade.
With the right course offered by Forex Forensics, you will be on the sure path to success in your Forex trading business. Our hands-on online Forex education and training will boost your Forex IQ and make you a smarter and more disciplined day trader.
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