Strategies and Tips for Forex Day Trading
Day trading Forex strategies require traders to be present at the trading station throughout the session. It’s widely believed that the narrower a time frame a trader works within, the more risk. That’s why people view Forex day trading as one of the riskiest approaches to the currency markets. It’s not the different Forex trading strategies that day traders have to use that increases the risk; instead, it is that Forex day trading rules are unforgiving to those who don’t follow them.
Two factors that no intra-day trader can do without are volatility and liquidity.
Stable volatility is a must when trading short-term. It reduces the selection of instruments to the major currency pairs, depending on the sessions. Since volatility is session dependent, knowing when to trade is as important as knowing what to trade.
Liquidity is equally important. A long-term trader can afford to throw in 10 pips here and cut ten pips there. A short-term trader cannot because ten pips might be the gross profit projected for a trade.
Here are the most popular day trading strategies in Forex.
This day trading Forex strategy aims to make several small profits on the minimal price changes.
Scalping can be exciting and simultaneously very risky. Scalpers must achieve high trading probability to balance out the low risk to reward ratio.
To become a scalper, consider developing a sixth market sense as scalping is the most lucrative strategy in every financial market.
That is perhaps the worst trading strategy in the world, primarily when used by unskilled traders.
The risk comes from the fundamental principle of trading against the trend. A reverse trader should be able to identify potential pullbacks with a high probability and to be able to predict their strength.
Momentum trading is a simple day trading Forex strategy that specializes in looking for reliable price moves paired with high volumes and trading in the direction of the movement. A high level of discipline is needed in momentum trading to be patient for the best opportunity to enter a position, and substantial control to keep focus and identify the exit signal.
Summary statistics and regression results
Forex Day Trading Tips
The practice of day trading is the least popular among professional traders and the most popular among rookie traders.
If you are a rookie, here is the most important Forex day trading tip of all: shun day trading altogether. First, try using long-term trading strategies to prove yourself consistently profitable on a live account for about a year. If however, you still decide to go into day trading, here are a few Forex day trading tips that may help out:
Day trading for beginners usually begins with research. They look out for different ways to improve their trading and dedicate time to search for the Holy Grail. Sadly, perfect systems don’t exist, and the only genuine Holy Grail is proper money management.
The best day trading software for beginners is obviously MT4 platform; it allows to trade with micro-lots.
- Open a demo account using MT4 day trading platform.
- Choose one of our strategies shown in webinars.
- Trade that system on a demo account until you are always profiting.
- Trade the demo account just as you would trade live account.
- The habits you develop in the demo will subconsciously carry over into your live trading.
Develop a strict trading plan and follow it sternly to manage your risks well.
Look out for averaging down. Averaging down is when you keep a losing trade open for too long. To avoid it, cut losing trades in line with pre-planned exit strategies.
There are two kinds of stop-losses a day trader must consider using:
- A physical stop-loss order placed at a price level following the risk tolerance, which you should know from your trading plan. Approximately 1-2% is a reasonable level.
- Mental stop-loss which is enforced by the trader when they get the feeling that something is going wrong.
Retail day traders, i.e., those who manage their money rather than somebody else’s, have another rule their stop-losses must obey. They set a maximum loss per day that they can endure financially and mentally. If they reach that point, they remove themselves from the market for the day.
Now let’s consider volatility spikes mixed with drops in liquidity.
When news releases are due, traders should cease trading, except if they are the market conditions that their trading strategy requires.
Even if you manage to know what the news will be, there’s no way to predict market reaction in the first couple of hours. Bullish news can trigger a bearish market bump and vice versa. Still, the best day trading strategy in Forex is to trade at your price always.