‘Swing for the fences’ every time traders place a trade is one of the biggest mistakes they make as new traders. For people outside the United States or other baseball-playing countries, they may not understand this reference. Still, it essentially means trying to score big in one shot and attempting to crush the ball over the fence rather than playing the fundamental part of the game and winning over the long-term.
Those who have small trading accounts are at a disadvantage in some ways. But they can still profit quite well using well-placed small trades and doing strategic planning ahead of time.
Do Not Risk Everything
Another mistake traders typically make is that they throw all their money into position in one shot. Though that can work, it can also end up drastically. When traders started to trade professionally and began to trade other people’s money, they must scale into a position. And this is because they can minimize the losses, as a small position put on initially getting knocked out is not much of a concern. For instance, it could only be 0.10% of a loss, allowing traders to keep their money safe.
Nevertheless, if the trade began to work out in favor of traders, they can add as they go along. Aside from that, it gives the ability to establish a large position as the account has more margin available to it as they gain. Also, market participants will slowly move the market in one direction, or the other, and traders will want to be there for the move. They can have as much larger swings against them in a small position and follow the large and longer-term trend. If they break through support or resistance and continue the trend, then they can just add. This is how higher funds trade because they are moving massive amounts of money. They do not risk all their massive cash into a single position in one shot because once they get knocked out, it’s too large of a loss.
Furthermore, scaling means a person looks at the longer-term picture. When scaling into a position, it is not rare that they might be holding into it for months. And this does not only take much volatility out of the markets, but it also helps with the psychological game as the person will only collect more money as time goes on.
Traders can put stop losses on their position separately, and they don’t have to have the whole thing taken out of the market if there is an unexpected retracement. This is what large traders do to get involved as they usually have some kind of fundamental thesis that they are following.
High Leveraged Accounts
If traders have a small account that they’re not afraid to lose, then they can consider massive amounts of leverage. But this is not recommended as it is merely throwing money away. But with the right amount of patience, they could write out the longer-term trend and take advantage of one of the greatest bonuses of trading forex; currencies often trend for 3 to 5 years.
With that, they can establish huge positions to make massive amounts of money along the way. However, an average retail trader does not have enough patience to build up a position because it is not that exciting. In that sense, they are more attracted to the massive leverage that some brokers offer. But the said enormous leverage could work against them, meaning there is a chance of blowing the entire account.
