5 Effective Strategies for Day Trading on Forex
Day trading is an exciting way of trading on the Forex market. Yet, it’s also the one that demands you be extra vigilant due to its short time frame and sporadic nature. This method of trading requires you to place emphasis on smaller price movement, frequently. Here you’ll need to be able to capitalize more effectively on such trades, as opposed to more long-term trading activities. To be successful in this, you need to select the right day trading strategy.
What to Think About Before Selecting Your Forex Day Trading Strategy
How much time you can allocate to trading?
Day trading requires you to spend a vast amount of time each day monitoring the market. This is besides being on the lookout for potential trading opportunities. If you can’t spend more than an hour or two trading daily, you shouldn’t expect to make big profits as a result.
How much money are you willing to risk?
Before you begin trading, ask yourself how much money you’d be prepared to part with should a loss occur. The most successful of traders understand that risk is inevitably involved with Forex trading. Thus, before embarking on any strategy, they decide on a percentage of how much capital they’re willing to put to each trade - and work to never go above this.
How educated are you regarding the Forex market?
Forex day trading is a fascinating and compelling industry. But, it's also one which requires your full attention and understanding of how it works from the ground up. Those traders who get the most out of their day trading continue to push their trading knowledge with each passing day. You should endeavor to make your trading journey a learning process, even when you believe you’ve mastered the basics.
This is a fast-paced and high energized market which requires you to stay up to date regarding news and events. Being in the know here gives you greater awareness of what could affect your assets, thus enabling you to trade better each time.
How good are you at keeping your emotions at bay?
Forex trading needs you to keep a clear head and keep emotions at bay. There’s no place here for fear, upset, nerves or greed when participating in this industry. You may think you’re a calm and collected person who keeps their emotions at the door. But, no amount of practical strategies will work for you if you can’t cope with other high-pressured demands and consistency of day trading. Strategy, logic, and math should be your guide here.
Five of the Most Effective Day Trading Forex Strategies
We believe there are five effective strategies that you can employ when day trading on the Forex market. These include Scalping, Breakout, Reverse, Momentum, and Pivot Points.
The scalping strategy is widely popular throughout the Forex trading market.
This is an exciting method and one which is incredibly fast-paced and certainly gives you a thrill as you trade throughout the day. However, with this edgier pace of trading comes the inevitable risk element. Requiring an almost sixth sense of the market, scalping involves capitalizing on those minute price changes. Therefore, the driving force behind this strategy is quantity.
With this edgier pace of trading comes the inevitable risk element.
As soon as a trade becomes profitable, you need to look to sell straight away. This means your trading probability needs to be high to even out the low risks versus reward ratios involved here. Scalping means that rather than waiting for the market to close – you work to close losing trades as soon as possible.
The key here is to look out for good liquidity and volatile instruments while perfecting your execution speed. Once you master this, scalping can be an extremely profitable day trading strategy.
This is a personal favorite among many successful Forex Traders. The Breakout strategy many traders use in accomplishing some substantial gains.
Breakout strategies tend to work around price clearance on specified levels on your trading charts. They do so though with increased volume. When entering into an extended position, you utilize the breakout method after the asset or security breaks above resistance. Those traders accessing this method for short positions do so once stock breaks below support.
The idea here is that assets and security trade beyond the price barrier specified, and volatility will usually increase. The prices often trend towards the direction of the breakout. Therefore, you’ll need to execute the set up here of entry strategy, placing a stop loss, and finally setting a target to plan your exits.
This strategy requires you to trade against the trend.
This is perhaps the best choice for those traders who have an in-depth and extensive base of market knowledge and practice. Reverse trading is an effective strategy for those who have confidence in the Forex market.
Also referred to as fading, counter-trend trading and even pull back trading, it may be a more cautious choice - but is in fact used worldwide. This strategy requires you to trade against the trend. Therefore, you need to be able to immediately identify those possible pullbacks. You can then accurately categorize them while predicting their strength potential. Such possible pullbacks will have a high probability.
This isn’t ideal for those Forex beginners, but it can be used as a productive day trading strategy. It’s ideal for those who like defying basic logic and instead of working against the trend.
Reverse trading is the more thrilling of plans which requires full focus, concentration, and willingness. This is because of its potential for risk, more so than other strategies.
This is, by many, a more simplistic day trading strategy and therefore perfect for Forex beginners.
Momentum trading requires you to identify those more substantial of trending moves. You then capitalize on new sources which all offer the support of high volume.
The idea here is to search for those strong price moves that are paired with high volumes. Thus, you are therefore trading towards the direction of the movement. This means waiting for the most beneficial opportunity to enter a position. Subsequently, you hold until you spot those signs of reversal before exiting. Additionally, you can also employ the method here if fading the price drop – with your price target as soon as volume starts to diminish.
Momentum can be a thoroughly effective day trading strategy as there is always stock which moves around each day. Requiring a couple of minutes on each trade, you can make a significant difference to your end of day profits here. It just needs you to make yourself aware and knowledgeable of all potential news and announcements of earnings.
5. Pivot Points
A hugely popular day trading strategy, using pivot points is one of the most useful of day trading options in Forex. This method involves both identifying and then acting upon that critical support and/or resistance levels.
Many use this method to determine their points of entry. Likewise, several breakouts and trend traders like to access this strategy when locating key levels to break for a move. Profit is gained through pivot point trading by way of the volatility of assets daily prices. During the low periods of the day, buying and selling take place. At the high period of the day, the closing of trade them occurs.
Some Forex traders believe accessing pivot points in your day trading allows you to gauge an indication ahead of time. This means discovering early on those potential turning points in the market.
What to Remember When Employing Your Forex Day Trading Strategy
- In concluding, when employing those most effective of day trading Forex strategies, you can make sure it’s a more successful venture. This is done merely by creating both an environment and method that helps you capitalize on such tried and tested strategies. Not every method is best for every trade or indeed trader. You may find success with one but struggle with another. The essential point to recognize here is what type of trader you are and what method would, therefore, work best for you individually.
- With every new trade comes risk, but one way to attempt a new trading strategy is to run it alongside a current successful one using a demo. This way, you give yourself time to acclimatize to the demands of a new method while continuing to work on your current one. Also, you get a sense of whether it will fit into your trading day and work for you.
- Ultimately, work on developing a collected state of mind and apply a good amount of regular time to your daily trading. Also, keep yourself knowledgeable and set pre-trading limits before beginning. You’ll then be better prepared to tackle those most effective of day trading strategies.
Day trading can be time-consuming and challenging, and you do need to devote a specific amount of time and energy for continued effort. Yet, select the most active day trading strategy, and you’ll ensure the most success in this fascinating Forex marketplace.