Learn to Day Trade Forex

Learn to day trade forex. Looking to day trade futures or foreign currencies? Most common mistakes to avoid.

Single Most Common Mistake: Overtrading

As Deel notes, the single most common mistake that forex day traders make is the tendency to overtrade. They turn trading into gambling, and feel compelled to make more trades in order to gain back their losses.

If you begin having to find excuses to justify your bad decisions, you are overtrading. In particular, attempting to trade your way out of a series of losing trades is a recipe for disaster, as you would be trading on emotions and making unjustified trades without knowing it.

Day Trade Futures with the ‘Magic Numbers’

Deel suggests that the magic numbers, or the optimum number of trades to make for any given trading vehicle is three to five trades. ‘Make only three to five trades per trading vehicle and try to limit your trading to the first two hours and the last two hours of the trading day.’ This approach allows you to make the most number of high probability trades where market volatility and other market conditions are all in your favor.

Day Trade Forex Mistake: Forgetting to manage risk

Once you enter a trade, risk management becomes the most important factor. There are traders who make 5 consecutive winning trades, and then lose it all in 1 trade. You need to always manage risk: stop orders are crucial, as is making an entry only when you have calculated a high probability of success.

Day Trade Forex Mistake: Not controlling drawdowns

Do you know how much it takes to recover from a percentage loss of capital of 50%? 100%. That’s right, you need to double your capital! Note that the larger your percentage loss of capital, the larger the percentage gain necessary to recover and merely breakeven. Thus, Warren Buffet’s rule 1 of investing is very important indeed: ‘Rule 1: Never lose money; Rule 2: Never forget Rule 1’

Unfortunately, as traders, losses are inevitable. What you should instead seek to control is the drawdown. Drawdowns below 20 percent would usually make it almost impossible to breakeven within a reasonable amount of time.

Learn to Day Trade Forex the night before

The night before the Forex Day Trade is crucial. As Deel notes, 90 percent of your money will come from the analysis you do the night before, not the day you make the trades. Don’t just walk into your trading room the next day, turn on the computer, and act like a cowboy shooting off trades at anything that moves. ‘Success is directly proportional to the amount of work you are willing to do that no one else will.’

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