We all agree that a successful trading journey starts with having a solid action plan. This will include trader’s goals and expectations as well as trading techniques specific to one’s previous market experience. Those plans are often referred to as trading strategies or methods. Having a strategy that fits your personality and allows you to comfortably achieve the set targets can go a long way and many traders tend to stick with just one or two strategies for years. The biggest complication is choosing the right trading method for yourself and it can definitely take up some of your time. The best way to approach the strategy selection process is to learn as much as possible about various methods and see how it fits you personally.
In this article we are going to explore what is Forex day trading including some of the popular day trading strategies, tricks and tips. It is important to understand how something works before attempting to implement it. We will also discuss what is intraday trading in Forex and how can a trader benefit from variations of intraday strategies. Additionally, we will briefly cover a way to practice risk free day trading for free.
What is intraday trading in Forex
First things first, it is important to establish that day and intraday trading is basically the same thing. The meaning of intraday is something that takes place inside or within a day. This way, day trading is a category of trading strategies that require traders to complete their trades during one taken day. This type of strategies are usually associated with fast paced trading process as well as with higher risk rates. As you can imagine, the market can only change so much within a 24 hour period, so the professional intraday traders need to be prepared to take great risks for a great reward.
The specifics of most day trading strategies is that they demand constant focus and undivided attention from the trader. Also, the intraday traders tend to work in smaller time frames which contributes to the increased trading speed compared with a longer term trading methods. Many new traders lean towards choosing any of the day trading strategies as their primary method due to the main idea - earning little amounts fast and waiting for them to accumulate into one large number. And while it is the basis of the day trading concept, these strategies require a good amount of previous Forex experienced. Day trading can be quite rewarding but there is also no room for mistakes, so take notes and let’s get into the technicalities.
The foundation of any Forex day trading strategy
Now, that you have a general understanding of what is day trading Forex strategy we can go into a little more detail. The crucial factors behind the day trading are liquidity and volatility. Disregarding of which strategy you use, these two will define your entire day trading experience. In case you are unsure on the definitions:
- Liquidity in simple words is the level of popularity of the chosen currency pair. The pair that can be easily purchased and sold while being surrounded by a great amount of trading activity is the one with high liquidity. The pairs with the highest liquidity on the modern market is EUR/USD followed by USD/JPY.
- And volatility indicates how drastically the price value can change for a specific pair by evaluating the uncertainty and risks involved in the price formation process. Volatility is the bread and butter of any day trader since it means that the price value can drop or raise significantly within a short period of time. This year the pairs with the highest volatility were GBP/USD and once again USD/JPY.
By evaluating the currency pairs by their liquidity and volatility the tarder can quickly limit their selection to just a few preferred ounces. This selection will most likely consist of one or two major pairs (the ones with the largest share of the market, normally involve USD) and possibly one cross pair (the pairs with a solid share that do not involve USD, such as EUR/GBP).
Another important aspect of intraday trading is precision. For a long term trader 10 pips up or down do not make a significant difference, however for a day trader 10 pips can sometimes be the entire session’s outcome. This brings us back to stating that most of what intraday trading in Forex require is very close attention and a great share of personal time. Additionally, a day trader needs to have an appropriate set of tools for both Forex daily analysis and prediction and trade execution itself.
What are Forex day trading tools and how to choose them
Before moving onto the specific trading systems and strategies, we should take a moment to discuss a professional tool set of an intraday trader. Obviously, the foundation of a trading arsenal is always an online trading platform. Currently the most efficient and therefore the most popular platform for Forex trading is Metatrader 4, commonly referred to as MT4. Metatrader has earned its respect by combining two crucial concepts for any effective software - high technical productivity and extremely user friendly interface. Getting to know the platform is very straightforward and it can be even easier with the use of a comprehensive MT4 user guide.
While the platform itself is a huge part of any strategy, the important role is played by the specific add ons the trader selects for the Forex daily analysis. We are talking about technical indicators. You can think of them as filters which were designed to extract specific data from the chart and organize it accordingly to either identify or confirm a trend. The most handy indicators for intraday traders are:
- Moving averages. MA is one of the most popular types of trading indicators which exists to connect the average closing values. Normally, the longer the period the more trustworthy the results, but for the day traders specifically a moving average is a tool to conquer the volatility by excluding the unnecessary noise. Additionally, MA is the go-to tool to detect the direction of a trend and built your trades accordingly.
- Bollinger bands. This indicator based on the theories of John Bollinger are convenient additions to the moving average. Two bands placed above and below the MA are indicating the highest averages and the lowest ones, this way they create sort of a range of the price movement and help to get a better perspective on volatility.
- Momentum oscillators. The price values go up and down on a constant basis and sometimes it can get tricky to catch the right moment of the crucial change. This is especially related to short period cycles outside of general trends. The indicator operates by predicting where the price is likely to head after achieving a new high or a new low. For day traders this is a way of saving time during daily Forex analysis and putting it towards actual trading.
As you master one or all three of the above it will become much easier to have a good understanding of the market situation which is a crucial step to following and adjusting a trading strategy.
Forex day trading systems and strategies
In case you are unfamiliar with the difference between a trading system and a trading strategy: system usually refers to the overall style of a trader, while the strategy focuses on more specific aspects such as exact point of entry and exit, indicator settings and time frames. A trading system will most likely have the same name as the strategy related to it, so it is important to know the difference when learning about them.
The main idea behind every available trading system including the intarday ones is that the currency market tends to move in patterns. Identifying and systemizing those patterns leads to a set of techniques used to benefit from any particular change and trend. At the rise of Forex market’s popularity it was majorly accessed by professionals from financial institutions like banks and investment management companies. Needless to say, their style was primarily defined by the nature of their jobs and therefore was very much predictive and more a less simple to follow. Now, however, the foreign exchange market is available for anyone who is looking to make it their source of income and with the large amount of traders came more complex and multi layered trading systems.
Luckily, anything about Forex market can be approached by systematic study and practice. Which means that as long as the trader knows the theoretical part and has a chance to get it worked out through training, they will get an opportunity to navigate the market easily and source their income from it.
Unique benefits of Forex intraday strategies
We have talked a bit on the high complexity of daily trading, but there is also a distinctive upside to them. So, what are Forex day trading benefits? There are three major ones:
- Intraday traders never carry their trades overnight. By opening and closing each trade within one day, day traders are not subjected to nightly broker’s charge called a swap. Even with the low swap ratio, traders who keep the position open to the next day know that they can add up into a decent amount, and this is simply something that a day trader cannot afford. By limiting the session to one day a trader completely avoids the swap charges and therefore preserves a good portion of their account balance.
- Although the main focus of a day trader is a lot of small victories that add up into one big capital, this does not mean that they are forced to trade with little amounts of money. An option with a high significance for a day trader is leverage. Leverage is a sort of credit provided by the broker that allows a trader to operate with larger amounts with a not so high initial deposit. This means that even the seemingly time consuming targets can be achieved much faster with a greater outcome. Of course, leverage is a great solution for any kind of trader, but intraday traders definitely benefit from it the most.
- Last but not least, day traders are more flexible and can change the course of action to their liking at any point. Long term traders are bound to follow a somewhat united direction while intradayers can figuratively speaking jump all over the place. Plus, by completing a higher amount of trades overall, the day traders are able to keep working with a higher trading profile.
What are the most popular Forex intraday trading systems
We already know what the Forex trading system is and how is it different from a trading strategy. Now it is time to discuss some of the specific intraday trading systems and their related strategies.
- Scalping is perhaps the most commonly mentioned and implemented trading system. This type of trading works by shaving off just several pips above the set price. It is extremely dependant on the trends and almost never allows trading against them. Scalping strategies are relatively easy to follow once you get the gist of it. The main idea is to achieve as many small wins as possible to later have them add up into a significant sum. Scalping is a bit roller-coastery as it can be both exciting and thrilling but also risky. The crucial trick to mastering scalping is working out the most fitting risk to reward ratio and build the trading process accordingly. Professional scalping is like operating a futuristic vehicle: there are many factors to consider such as volatility of the chosen pair, market’s liquidity and the pace of trading. However, as soon as you obtain the skill of effective Forex scalping, you should be able to achieve very noticeable results and high profits.
- Momentum intraday trading is a little more complex and usually tied with the fundamental daily Forex analysis and prediction. This type of a trading system is partially intuitive as it involves purchasing an asset slightly prior to an expected news release which is supposed to have a visible impact on the market. The key to momentum trading is concentrated focus: once you have acquired the asset your job is to look out for signs of the most profitable exit. The general rule of thumb is to look out for the appearance of bearish candles right after the volume started to slow down. Best advice is to remain patient and cold hearted when implementing a momentum trading strategy.
- Fading trading systems in Forex are the ones that are often thought of as against the stream ones, but in reality all they do is work a little differently with the existing trends and not necessarily contradicting them. Fading involves placing the trades against the ongoing trend in order to benefit from the reversal. The circumstances for any fading strategy need to be one of the following: a)The traded pair is either overbought or oversold; b)Early sellers or early buyers are about to take profits; c)Either current holders or short sellers are subjects to possible risk. In order to lower the risk during the implementation of fading strategies it is important to set up the distinctive stop losses and take profits, to avoid getting carried away by a newly generating trend that followed the profitable reversal.
- Daily pivots intraday trading strategy's main idea is to buy at the lowest to then sell at the highest within a limited period of time. It sounds very straightforward and it is, but as anything else in Forex it comes with its own nuances. The pivot point can be considered a turning point and is calculated by a specific formula. The tarder can choose to find the pivot value on their own or use the specially designed calculators and indicators. At the end of the day, the goal is to benefit from the high volatility of price values.
Choosing the right intraday trading strategy
At this point you probably already realize that even though day trading may be the fastest way of making profit on Forex, it can be slightly different not only to choose the right path to follow but also to execute it correctly. It is important to keep in mind that there is a broad variety of available systems and strategies and with a variety comes diversity. Which means there will always be a right option for you, all you need to do is locate it and use it wisely. Here are some guidelines that can be used to evaluate any trading strategy in general and a selected intraday one in particular:
- Start by setting your goals. When you are planning anything at all it is important to establish the desirable outcome. Try to be as specific as possible. Most importantly, listen to yourself and do not be afraid to go too low or too high. After all, you can always come back and adjust the set target in the process since you are the one dicatting the rules.
- Decide on your trading budget. For some traders Forex is a primary source of income and for some it is only a side gig that brings them a minimum extra amount. Obviously, depending on the size of your trades and the chosen trading style you will need to deposit different amounts of money to support your choice. The best advice for newbies is to start small and increase your budget gradually. And of course, the experienced traders can operate with whatever amounts they wish to since they know exactly what they are doing.
- Rationally evaluate your spare time. Once again, Forex can be both a day job and a part time experience. Choosing the appropriate trading strategy will largely depend on how much time are you willing to contribute to trading. As you already know, there are options available to fit any schedule and as long as you know what your requirements are you will not have an issue in finding the right one. Additionally, you can always choose to opt out to automated trading which will not take up any of your time.
- Decide on the risks you are willing to take. It is a known fact that currency trading is a risky matter due to the market’s nature. However, it does not mean that there is no room for risk management. Some of the most common techniques to reduce the risk is to trade with only a portion of your balance, or limit the amount of your tardes by a specific number of profit amount. Professional traders always focus on preserving capital rather than growing it. Making more money is definitely important, but risking everything you already have to do so is absolutely not a good idea.
- Grade your level of expertise. Very simple: do not attempt techniques and strategies without being accordingly qualified. Nobody gets to fly a plane on the second day of pilot academy, so be honest with yourself when doing a mental check up of the knowledge and skills you already have and those that you are still yet to acquire in order to become a successful trader.
As you get a clear understanding on each of the above, the search of the right strategy will speed up immediately. Filter out the systems and strategies that will definitely work for you and then consider practicing the ones you are left with in demo account. Now, that we have mentioned it, might as well talk about an opportunity to practice your intraday trading skills for free.
Forex day trading practice account
Demo accounts for Forex trading are a great tool for both market newbies and the trading professionals. These practice accounts are exact copies of their real counterparts including all of the sophisticated features of Metatrader 4, every available indicator and even the live feed of the current market price values. Here are some major benefits of opening a demonstration trading account:
- A demo account is a safe space to take your time and get to know all of the complex aspects of currency trading at your own speed. If you are new to trading it would be a good idea to slowly click through every available button and menu in the simulated trading terminal to get a good idea on where to find them and how do they work.
- There is no real money involved in the process of demo trading. Opening an account is free and you do not need to invest any actual money to start trading in demo. Which means this is a risk free way to experiment with difficult to master trading systems such as Forex intraday trading. And the market experts can use the demo space to develop their very own trading strategies by playing around with various settings and techniques.
- Demo account can serve as a great confidence booster. Some of us prefer to learn through a hands-on approach and what is a better place to do it than an entirely virtual environment that is able to simulate the real outcomes. This means that by practicing a strategy in demo you will get to see how exactly would it play out on the real market.