Forex Market has a low entry barrier, making it one of the world’s most accessible day trading markets. Anyone with access to a computer, an internet connection, and a few hundred dollars can start day trading. It should be noted that this easy entry is not a guarantee that you will make a quick profit. 

Many forex traders make mistakes that are easy to avoid but result in enormous financial losses. With knowledge, discipline, and an alternative approach, you can avoid these devastating mistakes. In This article will discuss 4 of these mistakes to help you avoid them. 

Trading Without a Stop Loss

Every forex trade you make should have a stop-loss order. If the price moves against you by a specified amount, a stop-loss gets you out of the trade. Having a stop-loss order on your trades takes away a large portion of the risk. The stop-loss prevents you from losing more than you can afford to lose.

Risking More Than You Can Afford to Lose

Establishing the amount of capital you are willing to risk on each trade is a crucial part of your risk management strategy. Any single trade should not involve more than 1% of a day trader’s capital. In other words, a stop-loss order closes out a trade as soon as it results in a loss of no more than 1% of the money invested.

In other words, even if you lose multiple trades in a row, only a tiny portion of your capital will be lost. Additionally, your losses are recouped if you make more than 1% on each winning trade.

Controlling daily losses is another aspect of risk management. A single bad day can cause you to lose a considerable amount of capital, even if you only risk 1% per trade.

Decide how much you are willing to lose each day and set a percentage. If you can afford it, you should discipline yourself to stop at a 3% loss in a day. It is possible to become addicted to day trading if you let it. Keep a strict budget and stick to it.

Overreacting

You never feel good after a loss. The emotion can cause you to make knee-jerk trades that are outside your trading plan, causing you to make irrational decisions.

There is no such thing as a perfect trade for a trader. You should stick to your plan and accept losses as part of trading. Your loss should be compensated by your trading plan in the long run. If not, review your plan and make adjustments.

Trying to win it all back in one trade.

Despite having a risk management strategy in place, you may sometimes be tempted to ignore it and take larger trades than usual. Losing several trades in a row may make you want to earn back some of those losses. After a winning streak, you may feel that you can’t lose. One trade will always promise such good returns that you are willing to risk almost everything on it.

If you feel this way, stick to your 1% risk per trade and 3% risk per day rules. Don’t go all in or increase your position without consulting your risk management strategy.