Making a living with forex day trading is challenging, but that doesn’t mean it is impossible. Even if you do not have a hedge fund with deep pockets, there are numerous steps you can take to earn maximum profits from day trading. Let’s take a closer look at some common mistakes beginners make with FX trading and what successful traders do to stay ahead.
Common Mistakes Beginners Make
Many people hear success stories about forex day trading from their friends or family, and get the impression that day trading does not require much knowledge or experience. They watch a beginner-friendly YouTube video and believe they are ready to step into the complex world of trading. Oftentimes, the reality behind such stories and moves is less exciting.
Starting Without Enough Knowledge
Buying currencies at one time and selling them at another is not as simple as it sounds. Without robust market knowledge and analysis, you cannot generate sufficient income to support your living. Moreover, many beginners fail to realize that even expert Forex traders are prone to losses.
Investing Large Sums
Some traders also invest large sums in trading, and a sudden change in currency prices makes them lose their entire balance.
Taking Large Risks
The higher the risk, the higher the reward, right? Not exactly. In forex day trading, risk management is critical for earning profits. Beginners are recommended to avoid risking over 1 percent of their capital. They ignore expert advice and start making big moves without following risk management strategies.
Feeling Invincible
After making some successful trades, many beginners start feeling invincible. They become overly confident and jump into trades without having a clear exit strategy.
What Successful Forex Day Traders Do
Now that we understand some common mistakes beginners make, let’s take a look at what successful forex day traders do to stay ahead.
They Focus on Acquiring Knowledge
Expert FX traders know the importance of building a strong foundation. Instead of jumping straight into high-risk, high-reward trades, they focus on polishing their skills. By utilizing both free and paid resources, expert traders acquire strategies that are often overlooked. Traders learn to conduct technical analysis, read chart patterns, and use indicators to make informed decisions. They also stay up-to-date on industry updates and technological advancements to increase their chances of success.
They Take Small Steps
Traders at the beginning of their careers tend to take things slowly. They read books and guides, consult with experts, and implement what they’ve learned into their trading style. They experiment with numerous trading strategies to find the one that best suits their risk profile and capital availability.
They Combine Existing Jobs with Trading
As a beginner, leaving your existing job to make forex trading a full-time career isn’t wise. Experts combine their forex trading with their existing jobs to have a safety net in place. They balance their time as they notice improvements in their trading returns.
They Focus on Emotional Control
Emotions can cloud judgment and lead to impulsive decisions. Expert traders focus on managing their emotions and rely on statistics and analysis. They learn to make objective decisions to achieve consistent profits.
They Implement Stop-Loss Orders
Successful traders understand the importance of managing risk exposure. One effective way to do this is to implement stop-loss orders. A stop-loss order instructs a broker to automatically sell a security when a predefined price limit is reached. For example, if you buy a stock at $75 and set the stop-loss order at $60, the order will be triggered if the stock price reaches $60 or below. Your broker will then sell your shares at the best available price in the market.
They Combine Trading Strategies
Don’t put all your eggs in one basket. Successful traders follow this advice religiously. Popular forex trading strategies include:
- Scalping
- Mean reversion
- Trend trading
- News trading
- Swing trading
- Price action trading
Combining strategies allows traders to diversify their approach and excel in different market conditions.
They Keep Track of Economic Data and News
From economic indicators to geopolitical events, the forex market is affected by a multitude of factors. Forex day traders closely monitor economic news and events, such as:
- Consumer Price Index (CPI)
- Gross Domestic Product (GDP)
- Central bank policies
- Core Personal Consumption Expenditures (PCE)
These events and news have the potential to reverse or expand an ongoing price trend. For example, by keeping track of a country’s GDP growth and inflation, traders can make informed predictions about currency pair prices and make decisions accordingly.
Conclusion
Can you make a living with forex day trading? The answer depends on your unique circumstances and approach. By learning advanced trading strategies, making smaller deposits in the beginning, implementing risk management strategies, and practicing emotional control, you can gradually make FX trading a robust source of income.
