Forex day trading is the dealing of currencies on the Forex Market applying the short-term trading strategy. It means that the approach followed in the trading involves a same-day opening and closing of trades.
For the most part, what most attracts the newbies in forex trading is its intraday trading basis, also known as day trading.
Day trading can be a highly profitable career if you do it carefully and correctly. It can also be somewhat challenging for freshers. So in day trading, it is highly essential that you go in with a well-prepared plan.
In this article, we will discuss in-depth all you need to know about forex day trading. The basics of day trading forex, types of debt trading, its pros and cons, etc., are some of the topics this article will be covering.
So, to learn all about the trading forex, continue reading.
The Basics Of Day Trading
The popularity of day trading is skyrocketing as it allows people to enjoy trading with high leverage and gives them the ability to quickly earn profit within a single day. As you already know, day trading is a system that refers to buying and selling a security on the same day. While any market exercises this trading system, it is mainly performed in forex day trading. In intraday trading, the trader will need to have plenty of market knowledge. It intends to profit even from small price movements without holding it overnight. However, the trader needs to be well funded and able ready to cope with losses as day trading positions could go on the opposite direction as well.
Hence, in intraday trading, traders usually favor liquid stocks or currencies. What they do is, at the start of the day, traders will pick a side and act on their behalf. Then end the day with a profit or a loss. Therefore, day trading is best convenient for forex traders with the time they need to analyze, implement and then keep track of the trade all in one day.
While day trading can be highly profitable, it is equally a tough job. Like any other form of investing or trading, a day trader must have prior training with a vast and thorough knowledge of the markets. It is also highly essential that the day trader needs to have a proper trading plan. But despite all these, it still does not guarantee success.
Types Of Day Trading
There are various types of day trading strategies a day trader can use to increase profits.
Here are some of the types of day trading:
In trend trading, you will ascertain an overall trend by looking into a more extensive time frame chart. As you see the general direction, you will check for trading opportunities in a shorter time frame.
Like trend trading, counter trend trading will first determine the overall trend and check for trades in the overall trend’s opposite direction, just as the name countertrend suggests. This strategy of going in the opposite direction of the general trend can get very risky. However, it can be hugely rewarding if it is timed and planned correctly.
In range trading, the day trader will examine the chart’s pattern during the day and point out the standard highs and lows. Also, at the same time, make sure that you closely tracked the differences in these points. For instance, if the market price hits high or falls off low, they will either sell or buy based on the traders’ perception. Thus, every time a price rises high, it falls back, and vice versa; this is called “trading in a range.”
Here, range trading needs to be volatile enough so that the price will keep moving throughout the day. However, not too volatile that the price goes out of range and begins a new trend.
Pros And Cons Of Day Trading Forex
While day trading forex has heavy advantages, it has its share of disadvantages as well. It is always wise to make sure that you know the pros and cons of day trading forex before you attempt a strategy.
First, let us look into the benefits of forex day trading.
- Reduced market exposure – Since a trader will hold a position only for a day, it lowers the risk to a great deal. Risk exposure while holding positions overnight can get very expensive as it can even result in slippage of significant orders.
- Shorter drawdown periods – Traders will inevitably experience losing trades from time to time. But compared to a long-term trader, a day trader will naturally remain in their drop for a shorter period. And this shorter recovery period is vital for those trading for a living.
- Rapid gratification – With intraday trading, you’ll quickly find out whether their trading decision is winning or losing.
- Higher activity levels – With day trading forex, your trading involvement will significantly increase, which is great for those traders who would like to keep themselves more active.
- Simple decision making – Decision-making is more straightforward and quicker with day trading.
And some of the downsides of day trading are:
- Trading costs get higher – Since traders are involved in entering and exiting the market throughout the day, the overall costs can add up and affect the trading business’ profits.
- Quick decision making – While quick decision-making can be a lot simpler and a lot easier, it can still drain you out. As quick decision making can demand quick thinking and swift response, resulting in a very stressful situation.
- Pay higher cost for software – Since day traders will constantly be tracking the market, they will need to invest in smart systems to help them make monitoring easier.
- Day trading could be extremely risky – It’s very difficult to predict where stock or currency prices are going to move towards within a single day. This makes day trading hard to predict and risky.
How To Make Money Day Trading
Depending on every individual trader and the plan they implement, they will earn or lose money differently. You should be prepared to lose as you can also lose your money in a glimpse if you aren’t careful. Because, in forex markets, the trading environment can quickly turn from peaceful to volatile.
How to get started with day trading:
- Open a Demo Account with a Forex Broker
- Come up with a day trading strategy. You should test multiple methods and strategies before you finalize your day trading strategy.
- Once you feel comfortable with your strategy, open a brokerage account and transfer money in
- Start implementing your strategy. You should have it written somewhere in order to remember following it. You should always stick to your strategy and not take emotional actions
- Evaluate the potential trades every morning or the night before
- Trade with your day trading plan and stick to it. It doesn’t matter if you start losing trades as long as you keep on track with your plan, you should be able to see winning trades as well.
- Review your trades at the end of the day and reevaluate your strategies if needed.
How Much Money Can I Make For A Day Trading
If you would apply the risk control strategy, it shows that with a win rate of 55%, you can obtain returns that are worth 20% per month in day trading forex.
However, it is easier said than done. So, a dedicated day trader with an acceptable strategy can comfortably pocket about 5% to 15% in a month.