Have you ever wondered why a prevailing number of all forex trades are closed within a one-day period? It is determined by the nature of a foreign exchange market. The market is volatile thus hard to predict in the long run. It is also highly influenced by daily economic and political events. Giving the right forecast for today is no doubt easier than doing it for tomorrow or next week. This and some more factors mentioned below answer the question of why the majority of forex traders adhere to the so-called day trading style.
What is Day Trading
While position trading involves buying and selling securities in the big time frames, day trading is an approach of short-term trades opened and closed within the same day. An order opened at the beginning of the Pacific session and closed in the American session is still considered a day trade. If a position is kept open overnight (even for a shorter period), it can’t be called a day trade. This trading style can be implemented in several strategies and perfectly suits full-time traders who are ready to spend time following prices throughout the day.
Day trading is a short-term trading approach that involves opening and closing one order within the same day.
Forex Day Trading Strategies
Opening and closing a relatively large quantity of orders, forex day traders take advantage of frequent currency price movements. Never keeping orders open overnight, they don’t have to worry about swaps (rollover fees). Intraday traders use various day trading forex strategies aimed at profiting from short-term market moves. Each of these strategies doesn’t exclude the other; moreover, they are often combined in pursuit of higher income.
Trend trading is a strategy that involves analyzing long time frame charts and determining an overall market trend. After learning the general trend, a trader then moves to a shorter time frame to find and take advantage of minor fluctuations. Technical indicators will come in handy to determine the right entry/exit points.
Scalping strategy enjoys huge popularity among forex traders. It involves placing multiple orders throughout the day in order to profit from minute price changes. It works great for volatile instruments. A single trade does not promise high profit and is closed after gaining about 5-20 pips. But a large number of successful trades like this may bring some impressive results.
Same as the trend trading, the fade (or fading) strategy implies speculation on trends. Traders who adopt the fading strategy go against the prevailing trend and benefit from trend reversal. A trader will sell an instrument when its price goes up and buy when it goes down right before the trend changes direction. This is considered to be a high-risk approach used primarily in times of major economic events. It requires a quick reaction and, if implemented correctly, promises impressive gains.
People who “trade in a range” know how price typically acts throughout a day and use it to their advantage. If not talking about any economic events, the price action tends to repeat itself. Knowing an instrument’s highs and lows (support and resilience levels) allows you to predict when the price will change direction and accordingly when you want to enter or exit a trade.
The idea of the momentum strategy is that a trader finds a currency pair that already shows a particular trend and is expected to continue moving in the same direction for a while. For example, buying USD/CAD when the oil prices (and the Canadian currency) experience a decline.
The daily pivot trading strategy implies buying at the lowest price of the day and selling at the day's highest price. To determine those, traders use the pivot point calculation.
A pivot point is a great tool widely used in the forex market to predict short-term trends and reversals. Although there are a few methods for calculating pivot points, the most popular one is known as a 5-point system. It involves the previous day’s highs and lows and close as well as two support levels and two resistance levels.
Pivot points are essential for intraday traders when it comes to understanding market trends and choosing entry and exit points. Those in their turn are helpful in identifying the right stop-loss levels and profit targets. Besides, they show whether the market is bullish or bearish. If the trading takes place above the pivot point, it indicates the ongoing bullish sentiment. Conversely, price action below the pivot point is a sign of bearish sentiment.
Forex Day Trading System
Forex day trading systems are tools that help currency day traders figure out the best timing to buy or sell currency pairs. They include graphical interfaces with technical charts. These systems are optimized for common intraday strategies described above and broadly divided into two types: manual systems and automated ones. A manual system requires much of a trader’s involvement (chart monitoring and reaction to signals). An automated system reacts to signals according to settings chosen by a trader in advance.
Forex Day Trading Tips
- Frequent trading implies frequent entry costs. This is why narrow spreads are particularly important when adopting this approach. You might do everything just right, but if the difference between the bid and ask prices is too big, the profit will vanish each time you close an order.
- Trade highly volatile pairs. It is the fast market moves that make this trading style so profitable. Although low volatility sounds safer, it might make you wait for hours before the price will reach the desired level. The most volatile thus the best day trading currency pairs are considered to be EUR/USD, GBP/USD, and EUR/JPY.
- Currency day trading is a time-consuming approach, and many traders forget about it. This approach requires a lot of time and discipline. If you want to make any significant profit from intraday trades, consider forex your full-time job.
- Keep an eye on major economic events. The success of each of the above-mentioned strategies is based on fundamental analysis. Following up on macroeconomic news is essential for intraday traders.
- Technical analysis must be a foundation for any conscious trading decision. Technical indicators will help identify market direction as well as the best entry and exit points. Subscribe to our daily newsletters that will help you pick up on market signals.
- Don’t forget about risk management. This is something novice traders tend to ignore; hence they often lose money. Decide on an acceptable risk-reward ratio first and apply day trading strategies that work for you.
How to Learn Day Trading
It is wise to start exploring forex by opening a demo account and trading virtual money first. If you are a new trader, a teaching account is what you need. It uses the same platform as the real account, shows the real-time streaming quotes, and prevents you from losing. A demo account does not imply gaining any profit, but it is a great tool for testing your strategy.
For those confident in their skills, Justforex offers day traders attractive conditions, including narrow spreads and 0% withdrawal commission. Open a trading account and make a profit today.
Day trading is a trading style that implies opening and closing a trade within the same day rather than keeping a trade overnight. To take advantage of this approach, it is advisable to build a personal trading system that will assist you in reaching your goals and will be determined by such factors as a risk-reward ratio, initial investment, etc. Day trading requires a lot of time and concentration for any significant profit.