The forex market has very low barriers to entry, making it one of the most accessible day trading markets in the world. There are two trading statistics that one trade per day forex want to keep an especially close eye on. Your win-rate is how many trades you win, expressed as a percentage. 25, you are a profitable trader.
Have a stop loss order for every single forex day trade you make. A stop-loss is an offsetting order that gets you out of a trade if the price moves against you by a specific amount. Having a stop loss assures that you get out of a losing trade. The price didn’t move how you expected, so there is no reason to say in the losing trade. Take the loss and move on to the next trade. A stop loss is placed at a location that shouldn’t be touched if you are right about the direction the price will move in the short-term.
You want that stop loss to be active as soon as you enter a trade. Placing a stop loss on each trade helps control risk, and also helps to avoid a common problem called “averaging down. Averaging down is when you make additional trades, adding to your position, as the price moves against you. Not only are you not exiting a trade that is losing you money, but you are making that position larger, which means the loss gets exponentially bigger the more the price moves against you and the more you add to the position.
Never add to a losing day trade. Take a trade with the proper position size and set a stop loss on the trade. If the price hits the stop loss the trade will be closed at a loss. There is no reason to risk more than that on a trade that is not doing what you expect.
Proper position sizing is part of the risk management strategy that all forex day traders should have. The first part of your risk management strategy is to establish how much of your capital you are willing to risk on each trade. Another part of risk management is controlling daily losses. For that reason have a daily stop loss.
Don’t only control your risk on each trade, but control your risk each day. Risk management was just discussed, but it’s important to bring up “going all in”. Even if you have a risk management strategy in place, there will be times you are tempted to ignore your risk management rules and take a much larger trade than you normally do. You are trading very well lately, and feel you can’t lose, so taking a larger position than usual isn’t that bad.
You feel very confident that you can’t lose on this particular trade, so you are willing to risk almost everything on it. These figures do not change based on your emotions or how you feel about a trade. If you risk too much you are already making a trading mistake, and mistakes tend to compound. If this big losing trade starts moving against you, you may feel regret which can lead to canceling your stop loss order in the hopes the price will turn around and you can avoid the loss. Worse yet, you may add to the position, hoping that if it turns around you can make an even larger profit. Avoid such situations in the first place.