Mistakes to avoid in forex trading
Before you take a plunge into getting a forex brokers with zar accounts to start trading in forex, then you need to consider the following mistakes which are common and which you have to avoid, as they are the main reasons that as a newbie, you might fail in forex trading.
If you continue to lose, then you don’t have to keep trading
There are two trading statistics that you have to keep a close eye on: your risk reward ration and your win-rate. When it comes to your win rate, it is all about the number of trades that you are going to win which is expressed in a form of a percentage. An example is when you win 60 trades out of the 100 then your win rate will be expressed as 60%. A day trader needs to work in maintaining a win rate which is above 50%.
Your ratio for reward risk is the amount that you are likely going to win in relation to the amount that you will lose on a trade in average. If your losing trade on average is 50$ and your trades for winning are at 75$, then your reward ratio will be expressed as $75/$50 = 1.5 a ratio of 1 indicate that you are losing as much as you are winning.
The day traders need to keep their reward risk to be above 1 and ideally above 1.25. You can as well still be profitable if your win rate tends to be lower and you ensure that your reward risk is higher or the other way round. You have to try keeping it simpler and developing strategies which have to win above 50% of each time that you trade, offering a better than the reward risk ratio of 1.25.
Trading without having a stop loss
You need to have a stop loss order for each day trade forex that you happen to make. A stop-loss is an order for offsetting which gets you out of a trade in case the price ends up moving against your by an amount which you specify. Anytime you have a stop-loss order on your trade, it means that you have taken a big portion of the risk out of your investment. In case you start to take the losses on a trade, the stop loss will prevent you from having to loss more than you can be able to handle.
Adding to a day trade losing
Having to average down is to add to your position as the price is able to move against you, in the belief that is mistake that the trend is likely going to reverse. To add to the lose trade is a practice which is dangerous. The price is able to move against you for a longer period of time than you expect, as your loss is known to get larger exponentially.
Instead, you have to take trader with the set a stop loss and the proper position size on the trade. In case the price gets to the stop-loss then it means that, the trade is going to be closed at a loss which is smaller as it would have done without it. There is no reason of having to risk more than that.