The ‘Don’ts you Need to Know in Forex Trading
The objective of a Forex trader is to take advantage of the price movements of a currency pair. No matter the direction of the movement of the market, the greater the volatility, the more trading opportunities you will have. However, high volatility does increase risk because there are more changes of dramatic movements. There are different styles of forex trading that can be used, such as day trading, swing trading, scalping and more. Regardless of what style you decide to adopt, you need to have some knowledge to start forex trading.
Everyone will tell you about what you should do in order to succeed, but there are also some things that you should avoid. You need to know what these ‘Don’ts’ are in order to enjoy profits from forex trading. Ready to know what they are? Let’s check them out:
Don’t use a real account to start forex trading
Nowadays, most forex brokers offer a virtual or demo trading account. This account comes with virtual funds, which means you are not risking any real money and can test your trading skills and become familiar with the market in a simulated environment. You will be able to understand how different technical indicators work, how to execute different types of orders, such as stop-loss, limit and take profit orders. A demo account is undoubtedly helpful because you need effective entries and exists in forex trading and this only comes through practice.
Don’t risk more than 1% of your trading account
One of the most common forex trading rules that should be followed is to not risk more than 1% of your available capital on a trade. This is a way of ensuring that one trade cannot have any major impact on your overall account balance. It can also be helpful in minimizing the losses in tough market conditions. A rule of thumb is to have five open trades at one time, as this can help in minimizing the impact of consecutive losses.
Don’t trade immediately after some big news
The volatility in the forex market increases after scheduled economic releases and even though it might be tempting to make some additional trades in a reactionary market, you may just end up losing if you don’t have a trading plan. Rather than doing so, it is better for a forex trader to ride out this volatility and enter into a trade later. In fact, some experts even recommend not to trade in the first 15 minutes when the markets open because this is when pending orders are filled and prices are adjusted.
Don’t keep adding to a losing trade
No matter what strategies you use in forex trading, losses are inevitable. Many traders make the mistake of ‘averaging down’ i.e. adding to a losing position in hopes that the trade will reverse and you will be able to profit. But, it is important to bear in mind that doing so may just end up magnifying your losses. Therefore, it is better to use stop-losses and to not add to a losing trade.
Don’t just dive in
Your future or career in forex trading can depend a great deal on your psychology. It is extremely easy to be influenced by one emotion or the other, such as fear, greed or temptation. For instance, if the whole day turns out to be unfavorable, many forex traders tend to get desperate and simply put their margin in a single trade. Likewise, having consecutive wins often ends up making forex traders overconfident. In each of these scenarios, traders will not be making objective decisions and will be influenced by their emotions. This can lead to disaster and is something you should avoid at all costs.
As long as you are careful and don’t do any of the things mentioned above, you will be able to make the most profits from forex trading.