Forex Day Trading Strategies: The Ultimate Guide

Apr 03, 2020

Day trading strategies are crucial when, as a trader, your aim is taking full advantage of frequent and small price changes. A consistent and efficient trading strategy is dependent on extensive use of indicators, candlestick patterns, charts, and technical analysis to predict future price movements.

In this article, we will discuss the most efficient trading strategies, how to develop them (from the beginners' level running up to the advanced), automated, and also asset-specific Forex day trading strategies. Also, we will be looking at the various day trading systems, how to develop foreign exchange day trading strategies, recommendations for the best Forex day trading systems, and expert tips on simple day trading strategies that work. You will learn why expert traders choose to adopt day trading strategies and the frequency at which you should daytrade.

Intraday trading is a collection of day trading strategies that require expert traders to open and close trades within the same day. Given that markets can only move so far within one day, intra-day traders use relatively riskier trading systems to accumulate the profits they seek.


What is Day Forex Trading?

Day trading is a term given to any Forex trading activity that occurs within a day. These include the buying and selling of securities that take place in any market. Successful day traders are those with a considerable amount of capital and in-depth knowledge of the market. However, having both capital and knowledge does not translate to success all the time. The probability that a trader is successful is a result of the activities of "unseen forces" and price fluctuations throughout intraday Forex trading.

In today's market, there are numerous trading strategies for beginners and experts. But, it is always safe to seek and develop the best and efficient Forex day trading strategies that work for you. If you are a beginner, a complete understanding of the best strategies adopted by experts is necessary for a profitable career. Without further ado, let's delve into the ins and outs.

What is Day Forex Trading?

Facts to Consider if You Choose to Day Trade

Time

Day trading is technically a full-time job. If you have the time, day trading is perfect for you. You have to analyze, complete, and monitor the trade throughout the day. Successful day traders make ample time to study the charts, monitor, and take trade actions at the right moments.

Practice, Practice, Practice

It is a common mistake for beginners to avoid practicing. Given that a considerable amount of your hard-earned money is at stake, it is necessary you practice as much as possible. You can take advantage of a demo account before trading with real money. While you practice, you can develop trademark strategies to help you scale through the market. Be sure you are successful while practicing before you choose to open a live account.

Consider Your Capital

The amount of money you intend to earn is a function of the capital you invest in a day trading. There is no legal minimum of capital for day trading. However, starting with less than $500 puts you on a limited number of trades. Traders with the intent of making withdrawable income in a month should have, to begin with, a minimum of $5000. If you want more, then invest more.

Effective Strategy

Forex trading is a serious business and requires a lot of commitment. You have to create or learn efficient strategies that guarantee a profitable advantage for every trade you make. You have to learn how to get in and out of both winning and losing trades. More importantly, you have to know how much money is as stake. Repeat your strategies over and over again, check the results to know what works best for you.

How Often Should You Daytrade?

Many traders, especially beginners, are sometimes not sure if they are under-trading or over-trading. Hence, the question of how often you should daytrade becomes logical.

It is crucial to have an effective trading plan because the frequency of your day trading is contingent on where your verified strategies can take you. Considering that day traders make only the trades their proven strategies allow, trade frequency and quantity will fluctuate each day. An effective strategy tells the trader precisely when to enter, the conditions, and when to leave.

Forex Day Trading Strategies

Forex trading strategies refer to a proven system that a trader utilizes to determine when to sell or buy a currency pair. There are several Forex strategies that traders can deploy, which includes fundamental and technical analysis.

A reliable Forex trading strategy allows a trader to critically analyze the market to execute trades using proper risk management techniques intelligently.

Traders must remain present at the trading station throughout the session. It is common knowledge that day trading is one of the most delicate strategies you can adopt in the currency markets. It is a fact because the smaller the time a trader operates in the market, the more risk they are expected to face. Adhering to Forex day trading rules is of paramount importance, and doing otherwise could prove costly.

Experts believe the risks faced by traders are not a result of the trading strategies they adopt. It is, in fact, the habit of not sticking to the rules. Most times, traders take day trading as the quickest method of making profits on the money they invest. It is not true. Many fail with the wrong approach. However, with consistent practice and strategy that best fits your style, you are bound to excel.

Forex Day Trading Strategies?

Scalping

Scalping is a day trading Forex strategy adopted by traders who want to accumulate a considerable number of small profits based on the minimal price variations that may take place.

For many traders out there, scalping is fun and also extremely risky. The most challenging part of scalping is closing losing trades in time. It is common to see scalpers opt for quantity trades, opening almost at the slightest notice because there is no other way to sail through the busy market place. Day traders who adopt this strategy seek to attain a high trading probability to balance out the low risk to reward ratio.

If you gain enough experience using the scalping strategy, you stand to be the master of one of the most profitable trading strategies in the Forex market. The only downside of this strategy is the risks that come with it.

Momentum Trading

It occurs when a trader indulges in trading the acceleration of price in a robust trending market. The momentum day trading strategy calls for a top-level discipline to guarantee success. Speaking of discipline, traders have to wait for the best moment to enter a position and sustain a complete charge to keep focus and spot the perfect time to exit.

Reversal Trading

Next to scalping in terms of popularity is the reverse trading. The strategy is deployed by traders everywhere. It is, however, not recommended for beginners as it involves trading against the trend. Traders who use this day trading strategy possess in-depth market knowledge and experience. These traders can correctly recognize possible pullbacks and also foretell their strengths.

Professional Forex Trading Strategies

Traders do not just start trading without developing a sound trading strategy that works for them. Every trader is different since the Forex strategies that they deploy are numerous. However, you need to understand and be comfortable with any Forex trading strategy that you settle with. And because each Forex trader has unique resources and goals, they must be taken into consideration when selecting a strategy that will be suitable for you.

There are three all-essential criteria that most traders use to compare all the different trading strategies out there. These include the typical distance to the target, frequency of trading opportunities, and time resources required.

Step-By-Step Guide to Forex Day Trading

The following step-by-step guide is designed to help beginners or first-time Forex traders to easily and quickly set up their own Forex daily trading system.

Research Currency Pairs

You need to perform in-depth research on the currency pairings you are interested in when it comes to making a Forex trade. It will give you the required knowledge that will inform you which currencies are likely to rise or fall in value over a particular period.

Many successful Forex traders from around the world select their currency pairs by accurately predicting the outcome of information or data that is released by several counties, based on their economic calendars. At a particular day of the week or time, all major countries usually announce how well one or even more market sectors are performing within the country. It can help you in your research for the currency pairs to settle with.

Be Wary of Expiry Times

It is essential for you to carefully select the type of Forex trade you are looking to place. These trades usually come with an expiry time that is no more than a single day.

You will be able to place trades that will expire within seconds, minutes, or last up to one full day. This is why you need to consider how long you wish to have your trades live.

Although many traders usually go for long expiry time trades, no one has anything against locking in a quick profit when placing, for instance, a 60-second trade. This is even more possible at a period when a particular country has released relevant economic data.

Stop Loss and Winning Goal

One vital aspect that you can enjoy when you trade Forex via a mobile trading platform is the ability to set your stop-loss limit as well as have a winning goal in mind.

These two factors, however, will be significantly determined by your trading budget. And one of the best ways for determining how much you can have as your stop loss limit is to set the financial value of every trade you place to at least 5 to 10 percent of your trading budget. You also need to set the same amount as your winning trading financial goal.

Intraday vs. Day Trading

You need to know that both day trading, as well as intraday trading, basically refer to the same thing. The meaning of "intraday" refers to something that happens within a day. And as mentioned earlier, day trading is the category of trading in which traders complete their trades within a day.

Since the Forex market can only change so much within 24 hours, professional intraday traders have to be prepared to take high risks for maximum rewards.

Benefits of Forex Intraday Trading Strategies

The following are the benefits of intraday trading strategies.

Intraday Traders Never Leave Their Trades to Run Overnight

Day traders open and close each trade within a day, meaning that they are never subjected to a "swap," a nightly broker's charge. However, even with a low swap ratio, Forex traders that keep their positions open until the next day can expect that they may add up into a pretty decent amount. But a day trader cannot afford this.

Therefore, by limiting the sessions to a single day, a trader can altogether avoid the swap charges, thereby preserving a considerable portion of their account balance.

Primary Focus – Lots Of Small Victories

For a day trader, lots of small wins will eventually add up into one significant capital. This, however, does not imply that they can only trade with little amounts of money.

One option that has high significance for day traders is the leverage. It is a form of credit that a broker provides so that the trader can trade with more copious amounts with an initial deposit that is not so high. This implies that seemingly time-consuming targets can be speedily achieved with a more significant outcome. Leverage is an excellent solution for any trader, but the category of traders than enjoys the most benefits is intraday traders.

More Flexibility

Day traders are decidedly more flexible and can, therefore, at any time, change their mode of action to their liking. But long-term traders, on the other hand, have no choice but to follow a moderately united direction.

Moreover, by completing higher amounts of trades in general, day traders can keep working with higher trading profiles.

How to Develop the Right Intraday Strategies for Success

At this point, you have already realized that day trading is the fastest way of making lots of profit on Forex.

Now, there are several strategies and systems that you must keep in mind, and this implies that there will always be a good option for you. What you need to do is locate that option and utilize it wisely. The following are a few guidelines for finding a day strategy that works best for you.

Trust Yourself

Everyone out there claims they have the best strategy there is. The reality is, what works best for trader A could be a disaster for trader B. What do you do?

Trust yourself. Practice, gather as much experience as possible and derive the right strategy that suits your style. Take full advantage of a demo account. Hone your skills and explore the many trading strategies at your disposal. By doing so, you can deduce an approach that is perfect for you.

Know Your Rules

Successful traders are those who follow the rules to a T as everything relies on them. You may have the best trading strategy, but if you don't keep to the rules, it will be fruitless. You have to know your rules because they declare the conditions necessary for trade entry and trade exit. You can create space for consideration later on.

Record Your Progress

After making a considerable number of trades, deploying your strategy, and following your rules, you should be able to make significant progress. Keep a record of your achievements. Find out what worked and what didn't work. Keep evaluating your day trading strategy. If it works, get additional knowledge about money management models to manage your risk before raising your position volume.

Day Trade Real Money

Here is the scary part for most beginners as the chances of losing money are high. But if you did practice as you should, there should be no room for fear.

Trust your trading rules as you did with a demo account. Anticipate more strong emotions when trading your real hard-earned dollars. As you hope for the best, foresee the worst outcome. Learn to conquer your fears while trading real money, as it reveals if your strategy works or not.

Forex Trading vs. Stocks

orex is a robust market with a wide range of flexible trading options. In spot currency trading, there is quite a good number of currencies traded. However, the bulk of market players choose to trade the four major pairs. It is much easier to trade with four pairs of currency than trading a countless number of stocks. No two traders are the same. Therefore, in choosing between these two, it comes down to what works for each trader. However, getting acquainted with differences and similarities between the stock and Forex market equips traders with informed trading decisions based on factors such as market volume, conditions, and liquidity.

Day Trading Tips and Tricks That Work

Day trading is never common among top-level traders. However, it is a common practice among beginners. An essential tip beginners should have in their pockets is the habit of trying out long-term options. Be profitable with a live account using long-term trading strategies. This will go a long way in building your confidence.

As the saying goes, practice makes perfect. Becoming an expert trader calls for a lot of training and discipline. The truth is, there is no such thing as a "perfect strategy." What is important is the proper capital management. The more you practice, the more experienced you become, the more you trust your trading strategies, and the lower the time frames you will be able to trade on favorably.

As we have mentioned earlier, day trading is way riskier than long-term trading. It is true because of the faster pace and higher frequency of events. Consequently, success is contingent on quick thinking and decision making.

If you are a beginner, your main goal should include a foolproof indicator or trading system that produces setups with a 100% success rate at all times. The smartest traders out there are those who have mastered the art of money management alongside risk management.

To manage risk in the best way, you have to create an effective trading plan and adhere to it righteously to manage your risks well. Discipline is the word here, and it happens to be one of the traders' priceless assets.

Exit Strategies in Day Trading

There is no permanent trend as far as the Forex market is concerned. Financial news, events, and the actions of "invisible hands" are responsible for the constant change in trends. Smart traders do not let their hard-earned profits run. They are aware they'll incur vital losses if that happens. What they do is exit trades at the best time.

Volatility-Based Approach Using ATR

The ATR is an acronym for Average True Range. It is a trading tool for measuring market volatility. The ATR shows how much an asset moves, on average, during a particular timeframe. Traders use the ATR to tell when they might want to initiate a trade, and it helps to determine the placement of a stop-loss order.

The higher the ATR is on a given pair, the wider the stop should be. It is a fact because a tight stop on a volatile couple could get stopped out prematurely. Additionally, setting stops that are too wide for a less volatile pair actually takes on more risk than is needed.

Traditional Stop

It takes a whole lot of discipline to downplay the emotional blunders that occur in your head when trading. One of the best ways to keep emotions in control is to set targets limits and stops once the trade is entered. It is a better means of entering the trade than without a stop-loss and allowing losing trades to devour the account equity.

Moving Average Trailing Stops

The concept of moving averages has been around for a long time. Moving average is, in fact, the root of many other indicators. It helps traders tell the course a currency pair is heading. This exit strategy is called the lagging indicator, given the fact that it is based on past prices.

The moving average operates by striving to level out prices by averaging price fluctuations into a single line that sinks and moves with them. In most situations, the moving average serves as part of trend following systems, and occasionally as a support/resistance.

If you like this strategy, you might also be interested in this Forex Candlestick Patterns Every Trader Should Know

Final Words

Day trading and being good at it requires discipline, commitment, and dedication. While many see it as the best method to trade and a quick way to make money within the shortest time, others are scared of venturing into day trading, considering the risk that comes with it.

Rome wasn't built in a day, and the same applies to day trading. Grow your discipline, learn to resist stress, and develop strategies that best fit your trading style. When you are confident, get a live account and trade your way up to the top. Good luck.

author

NSBroker Analytics Team

Expert Traders From NSBroker specialize in forex trading and have been successfully helping people profit from the markets for the past 9 years. Our traders consistently blog about the state in which the markets are at. Learn how to profit via forex trading with NsBroker.