It turns out that failing Day Trading is very likely to be avoided if the trader is able to understand the following important things. What are they?
SakurajimaForex - Do you want to be a successful Day Trader? It is undeniable, this trading style has become excellent because it is considered to be able to bring profits without the need to hold positions for too long. Typically, a Day Trader will often open and close trading positions within one day or less; the goal is to immediately get certainty of profit or loss. So, why do many traders actually fail Day Trading? What caused it?
Besides being high risk, Day Trading is also very mentally draining because it has daily target demands. However, this is often overlooked by novice traders, so that what happens in the field tends to be painful. Many traders fail Day Trading and end up with heavy losses and stress.
But that doesn't mean this trading technique can't be learned; everyone has the same chance to become a successful day trader. Now to achieve this, the author will review several things that must be considered so that you avoid regrets due to failed Day Trading. What are they?
1. The market is a friend, know it
It turns out that this saying is very relevant to the application of Day Trading. Beginners fail Day Trading usually begins with an attitude of underestimating the market by jumping into the market without recognizing it first. In fact, recognizing the market is an important point that traders must master; Weak understanding of the market will only lead traders to the brink of bankruptcy.
In summary, the forex market is a place for buying and selling currencies between various parties and carried out online. In this case, there are at least three things that traders must learn in order to be friendly with the market, including:
- Currency liquidity: The ability of a currency to be traded as quickly as possible; which means the more liquid the currency, the better. However, not all currencies have high liquidity. For novice Day Traders, it is highly recommended to choose a currency that has good liquidity such as major pairs.
- Currency volatility: The range of fluctuations or fluctuations in currency prices. Not all liquid currency pairs in the forex market always move with high volatility. Between high vs low volatility, which is the best? For beginners, it is better to look for a pair with moderate volatility to avoid excessive risk.
- Economic calendar: A collection of fundamental news release schedules, press conferences, and other important agendas. This information is useful to help traders analyze the prospect of price movements of the related currency.
2. Avoid being fanatical to one method of analysis
In forex trading, there are two of the most popular analysis techniques, namely fundamental and technical. Do traders have to choose only one? Which is the best? Most beginners only focus on one type of analysis. This is the reason many beginners experience Day Trading failure. In fact, the two types of analysis are equally important and complementary.
With technical analysis, traders will be greatly helped in observing market conditions using technical tools and indicators. To get better analysis results, technical traders usually also observe candlestick movement patterns or better known as price action.
On the other hand, fundamental traders will study the relationship between market price movements and changes in economic conditions. For fundamental traders, the ability to identify supply and demand imbalances in the market will be very helpful in spotting long-term profit opportunities.
According to the facts on the ground, professional Day Traders will tend to use fundamental analysis to find out the factors driving prices, then validate them with technical indicators. This is the real reality of trading; trading only by relying on one type of analysis will actually reduce signal accuracy.
3. Without a mature strategy, everything will be in vain
Many beginners fail Day Trading because they don't have a clear strategy basis, or the methods used are just "perfunctory" and often change. In fact, a mature strategy is needed so that trading is more disciplined and organized. Simply put, a trading strategy can be interpreted as a method that traders will use when they want to enter the market. It contains a complete set up which includes: indicator type, time frame, trading duration, to profit targets.
Broadly speaking, the basic trading strategies are divided into two types, namely: Trend Followers and Trend Counters. As the name implies, Trend Follower is a trading style following the latest trends. If the market is going up, the trader will open a Buy position. Conversely, when the trend is down, Sell positions will be taken.
There are also types of trading strategies against the market or Trend Counter. The main principle is "Buy Low Sell High" by taking advantage of the price reversal saturation point. When the market is experiencing a significant bullish or bearish trend, traders will take positions that are against the trend.
So, how to make a clear Day Trading strategy? It doesn't have to contain long and detailed sentences, just make it short, clear, and easy to understand. Beginners who still can't make a day trading strategy can follow the steps below:
- Determine the basis of the trading strategy, whether Trend Follower or Trend Counter.
- Find the indicator that best suits your trading style.
- Determine the strategy for entry and exit.
- Set the risk/reward ratio.
- Determine the position size according to the Stop Loss target.
- Test the trading strategy on a demo account before using it on a real account.
- Keep trading journals and records for evaluation.
4. Press the Ego As Strong As Possible
The reason traders fail the next Day Trading is indifferent to psychological conditions. A professional trader, Richard Dennis, said that the main enemy of a trader is not extreme market fluctuations or bad trading strategies, but the difficulty of fighting one's own ego. According to her, an uncontrollable ego will give birth to greed, overconfidence, FOMO, and even impatience. These traits will usually lead traders to the brink of defeat.
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(Also read: What is FOMO in Forex Trading?) |
Often found, traders have difficulty staying consistent in the trading system that has been created; usually caused by opening a position outside the scenario, changing a predetermined lot, entry when the signal is not yet valid, etc. In fact, breaking the trading system is a sign of bad trading psychology. Traders who have recently experienced losses tend to open new positions and neglect risk management, in the hope that losses are quickly covered. But what happened was quite the opposite, instead of making a profit, it might even be a Margin Call (MC) that occurred.
To suppress the ego and form a good trading psychology, Day Traders must know when to stop trading for a moment, namely when you lose, after you win, and when you get bored. When you lose, stop trading to calm your emotions. When winning, stop to avoid overtrading. And when it's late, stop to refresh. In essence, trading when psychological conditions are not good will only lead to mistakes that actually cloud your trading atmosphere.
The journey to become a professional Day Trader does not end here. In addition to the 4 things above, also understand Day Trading rules so that you can trade carefully and avoid unnecessary mistakes that endanger the durability of your account.
