Infomediaku.net | 5 Common Mistakes of Daily Traders to Avoid
Day traders usually open and close trading positions on the same day. They tend to open multiple positions on various currency pairs relying on trading signals from technical indicators, price action, and fundamental news releases. The trading time frame used is usually between 15 minutes to 1 hour (hourly).
For those who are experienced, this way of day trading can be profitable. But for beginners or those who don’t have enough experience, in the long term day trading can potentially cause losses.
5 Common Mistakes of Daily Traders to Avoid
Beginner day traders often make mistakes that lead to the abyss of loss. Here are 5 common mistakes that daily traders make, namely:
1. Averaging Down
Daily traders are often trapped into averaging down or opening the same new position when the previous position was experiencing a loss. Although it may not have been planned at first, it was finally done to pursue a predetermined daily profit target.
Unplanned averaging down is gambling and more emotional in nature. It is necessary to consider the costs needed to cover the losses or drawdown that will occur later.
The best way to avoid this is to work according to agreed risk management and not having to open new positions if there is no signal.
2. Trapping Position Ahead of Fundamental News Releases
Implementing a position trap is usually done by simultaneously holding a buy stop and a sell stop order. This is usually done by day traders ahead of important fundamental news releases that are thought to cause high volatility. This is a classic way that day traders often do. To avoid too high volatility, traders usually have set profit targets for each position.
This method often worked a few years ago, especially when the United States’ Non-Farm Payroll (NFP) data was released. But lately, it often fails due to the volatility expected to be often not big enough.
The risk of trading in this way is the possibility of slippage (price jump) so that the trader gets a price higher than a pending buy order or lower than a pending sell order. In addition, spreads get bigger when market volatility increases.
3. Open Position Immediately After Fundamental News Release
Usually, this is done after often failing by trapping. Whatever happens, entry during high volatility is very dangerous. Apart from the possibility of slippage, we also do not know for sure the effect of the newly released fundamental news. Traders usually wait about 30 minutes to open a position after the news release.
4. Set Too Big Per Trade Risk
Too big a risk per trade does not mean you will get a big profit. This is done because day traders tend to want to trade large lot sizes in order to get sufficient daily profit.
Traders are recommended to set a maximum risk per day of not more than 2 percent of the balance on the trading account.
5. Less Realistic Profit Expectations
As well as lot sizes tend to be large, the determination of the risk/reward ratio is too high for the daily pursuit of profit targets are often carried out by the daily traders.
At a low trading time frame (below 4-hour) there will tend to be a lot of noise, so you must be careful and realistic when determining the risk/reward ratio.