Day Trading in the Forex market means that trades open and close in the same trading day. Positions are held for very short terms. This type of trading is also called Intraday Trading and is one of the day trading strategies that you can implement. As with any type of Forex trading, there are different strategies that can be used. Whatever your chosen strategy, there are factors that are important to pay attention to, and rules that must be followed.
The two most important factors to a Day trader are volatility and liquidity. For Day Trading to work, the currency pair has to be volatile enough that it moves in the span of one trading day. If your currency pair doesn’t move quickly it is not the right one for you to use for Day Trading. Liquidity is what allows for these trades to happen at a fast pace. Without the liquidity that allows for these trades to take place quickly, Day Trading in these currencies will not work.
Day Trading Strategies to Use in the Forex Market
One of the most popular trading strategies for Day Traders is called Scalping. This is the term used to explain skimming off small profits from several trades per day. Scalping is an extremely fast paced type of Day Trading and this strategy is not for anyone who is doing anything with his time other than Forex Trading. Scalpers often trade based on one minute and tick charts and focus carefully on the second that news comes out in order to make their move.
Another Day Trading strategy that is used is called reverse trading. Some advisors may argue that it is the worst strategy and can be detrimental to novice traders. Sometimes reverse trading is referred to as pull back trading because you are watching and waiting for potential pullbacks against the trend. This is the highest risk trading in Forex. This strategy requires you to wait for a price breakout and then wait for the price to pullback. Then you enter the trade after the pullback.
Momentum Trading is another common Day Trading strategy. This strategy helps traders pay attention to the shortest term trends in the Forex Market. A trader using Momentum Trading will look at the hourly chart and then the 5-minute chart. You will want to use the short-term low of a bullish trend to enter your position. You are looking for strong price moves and high volumes of trading in the same direction as the price move. A trader has to be extremely disciplined to be able to spot the right time to enter and exit the trades in Momentum trading.
Any Day Trading Strategy requires studying the charts before and after you enter. The here and now is not enough to go on. The charts for the hours before you are actually trading will help you decide on the best strategy for you. You must look at the big picture when evaluating a trading strategy.
As always it is recommended to try out your strategy on a demo account before using real money. Make sure you are comfortable using this strategy and that it works for you and you are profitable before adopting in your actual Forex Trading.
What about you? Have you tried day trading with forex? Or, do you have other day trading strategies?