Forex Trading Mistakes Beginners Need to Avoid

2020 has seen the flooding entry of motivated Forex trading newcomers. But we have also noticed the trading mistakes that they have made in the way. Such mistakes, if not rectified, can discourage the traders and cause them losses. Let us look at the ten mistakes that one should avoid to be successful-To get more news about Forex Trading Mistakes, you can visit wikifx.com official website.

1. Lack of Proper Trading Education

Before risking capital in trading the Forex market, acquire sufficient trading education and clock enough chart time to learn price movements and patterns.

2. Misuse of Instruments (Leverage, Stop Loss, Indicators, Candlesticks)

Make sure to properly understand the key factors and variables of Forex trading and how they are related to each other. To get a better edge, you can go through the hundreds of online content that is available.

3. Risking More than You Can Afford to Lose

You should set a percentage for the amount you are willing to lose in a day. If you can afford a three per cent loss in a day, you should discipline yourself to stop at that point. Day trading can become an addiction if you let it. Play with the money that you have set aside, and stick to your strategy.

4. Choosing an Unsuitable Broker

Depositing money with a Forex broker is the most significant trade you will make. If it is poorly managed, in financial trouble, or an outright trading scam, you could lose all your money.

Take time in choosing a broker. You should consider what you want to accomplish, what a broker offers, and make sure to use reliable broker referrals sources. Then, test the broker using small trades at first, and don't accept bonus offers with their services.

5. Taking Multiple Trades that are Correlated

If you see a similar trade setup in multiple forex pairs, there is a good chance that those pairs are correlated. That is why you see the same setup in each one. When pairs are correlated, they move together, which means you will probably win or lose on all those trades. If you lose, you have multiplied your loss by the number of trades you made and vice-versa.

6. Minimal research

Studying the market as it should be will bring light to market trends, the timing of entry/exit points, and fundamental influences—the more time dedicated to the market, the greater the understanding of the product itself. Within the forex market, there are subtle nuances between the different pairs and how they work. These differences need a thorough examination to succeed in the market of choice.

7. Emotion-Based Trading

Emotional and impatient trading often leads to irrational and unsuccessful trading. Traders frequently open additional positions after losing trades to compensate for the previous loss. These trades usually have no educational backing, either technically or fundamentally.

8. Denying the Importance of Maths and Statistics in Trading

Maths and statistics are boring and hard, but it does not matter whether you like it or not. As a trader, you have to understand basic mathematical concepts. In the end, trading is nothing but juggling probabilities, calculating odds, and trying to move them in your favour.

9. Lack of a Trading Plan

A trading plan and a trading journal are an essential part of a Forex Trader’s arsenal and are instrumental in avoiding other mistakes and ensuring constant improvement.

10. Skipping Trading Practice on a Demo Account

Don’t skip the opportunity to get acquainted with Forex trading by engaging in a demo account’s potential. This also indicates a broker’s seriousness towards its services: giving a comprehensive, risk-free, and hands-on introduction into trading by offering educational infrastructure before delving with your funds into a live trading account.

How Much Money Can I Make Forex Day Trading?

Many people like trading foreign currencies on the foreign exchange (forex) market because it requires the least amount of capital to start day trading. Forex trades 24 hours a day during the week and offers a lot of profit potential due to the leverage provided by forex brokers.1 Forex trading can be extremely volatile, and an inexperienced trader can lose substantial sums.To get more news about Forex Day Trading, you can visit wikifx.com official website.

Every successful forex day trader manages their risk; it is one of, if not the most, crucial elements of ongoing profitability.

To start, you must keep your risk on each trade very small, and 1% or less is typical.3 That means that if you have a $3,000 account, you shouldn't lose more than $30 on a single trade. That may seem small, but losses do add up, and even a good day trading strategy will see strings of losses. Risk is managed using a stop-loss order, which will be discussed in the Scenario section below.

While a strategy can potentially have many components and can be analyzed for profitability in various ways, a strategy is often ranked based on its win rate and risk/reward ratio.

Win Rate
Your win rate represents the number of trades you win out of a given total. Suppose you win 55 out of 100 trades; your win rate would be 55%. Having a win rate above 50% is ideal for most day traders, and 55% is attainable.

Risk/Reward
Risk/reward signifies how much capital is being risked to attain a certain profit. If a trader loses 10 pips on losing trades but makes 15 on winning trades, they are making more on the winners than they're losing on losers. That means that even if the trader only wins 50% of their trades, they will be profitable. Therefore, making more on winning trades is also a strategic component for which many forex day traders strive.

A higher win rate for trades means more flexibility with your risk/reward, and a high risk/reward means that your win rate can be lower, and you'll still be profitable.
Hypothetical Scenario
Suppose a trader has $5,000 in capital funds, and they have a decent win rate of 55% on their trades. They risk only 1% of their capital, or $50, per trade. That is accomplished by using a stop-loss order. For this scenario, a stop-loss order is placed five pips away from the trade entry price, and a target is placed eight pips away. That means that the potential reward for each trade is 1.6 times the risk (8 pips divided by 5 pips). Remember, you want winners to be bigger than losers.

While trading a forex pair for two hours during an active time of day, it's usually possible to make about five "round turn" trades (round turn includes entry and exit) using the above parameters. If there are 20 trading days in a month, the trader is making 100 trades, on average, in a month.
Trading Leverage
In the U.S., forex brokers provide leverage up to 50 to 1 on major currency pairs.4 For this example, suppose the trader is using 30 to 1 leverage, as that usually is more than enough leverage for forex day traders. Since the trader has $5,000 and leverage is 30 to 1, the trader can take positions worth up to $150,000. Risk is still based on the original $5,000; this keeps the risk limited to a small portion of the deposited capital.

Forex brokers often don't charge a commission, but rather increase the spread between the bid and ask, thus making it more difficult to day trade profitably. ECN brokers offer a very small spread, making it easier to trade profitably, but they typically charge about $2.50 for every $100,000 traded ($5 round turn).
Trading Currency Pairs
If you're day trading a currency pair such as the USD/CAD, you can risk $50 on each trade, and each pip of movement is worth $10 with a standard lot (100,000 units worth of currency).5 Therefore, you can take a position of one standard lot with a five-pip stop-loss order, which will keep the risk of loss to $50 on the trade. That also means that a winning trade is worth $80 (8 pips x $10).
Slippage Larger Than Expected Loss
It won't always be possible to find five good day trades each day, especially when the market is moving very slowly for extended periods.

Slippage is an inevitable part of trading. It results in a larger loss than expected, even when using a stop-loss order. It's common in very rapidly moving markets.

To account for slippage in the calculation of your potential profit, reduce the net profit by 10%. (This is a high estimate for slippage, assuming you avoid holding through major economic data releases.) That would reduce the net profit potential generated by your $5,000 trading capital to $1,485 per month.

You can adjust the scenario above based on your typical stop-loss and target, capital, slippage, win rate, position size, and commission parameters.

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