The world of currency exchange is tough business, so traders utilize as many Forex trading strategies as possible to have an advantage in the game. A good way to look at techniques is to identify what one shouldn’t be doing. Here are some actions that any serious trader should avoid:
Forex Trading Strategies You Should Avoid
1.) Pre-Empting Current Events
It is a well-known fact that shifts and changes in current events and geopolitics have a significant impact on whether a foreign currency will spike or dip down. Among the many Forex trading strategies, one thing you should avoid is to pre-empt the news with an action or a trade.
Of course, there is a good chance that the trader might be correct in his prediction. He might even have data or evidence to back it up. But it will always be probably for the event or the news to turn out differently than expected. The trend that one is foreseeing might not happen or it might even head to the opposite direction. Making a trade or putting yourself in a position might even increase the chance of failure and the loss of assets.
2.) Averaging Down
Averaging down might be one of the effective forex trading strategies, but doing it consistently and for a long time might have negative effects on a trader’s capital.
Averaging down for a long time is a serious loss of profit. At the same time, it is a waste of time and your current cash holdings. The Forex world is riddled with opportunities for more growth and more gain. Staying on a position for too long means that you will never be able to dip your hand in the wealth of money available at your fingertips.
At the same time, although it might not look obvious at first, averaging down actually is a stepping stone towards larger losses. Nobody knows how a spike or a dip or a certain trend can be sustained. And by averaging down, there’s a chance that you might not get back your original capita.
3.) Trading More Than Your Bargained For
Taking a risk is a major component of Forex trading strategies, but there is a thing such as too much risk, especially when not all directly result to profit. This is especially true for traders who utilize too much of their capital. One typical rule that traders follow is that he or she should not risk more than 1% of his or her total capital in a single 24-hour period.
4.) Instantaneous Trading
Forex trading strategies that involve immediately trading big after a news might look like a good idea at first. But according to a lot of traders, it actually isn’t, especially if one is not in possession of a solid plan. There are a million things that can go wrong once a big news comes out. Without warning whatsoever, the news will have an adverse effect and the currency might go a different route. Make sure to study and trade intelligently every time this happen.
Avoid these mistakes at all cost to ensure profitability and growth in the foreign exchange market.