Live For Today: a Definition and Basics of Day Trading in Forex

It’s all in the name: day trading is opening and closing the trading positions within one day.  The concept of one day can be stretchy for forex traders because one can open the position early in the Pacific session and close it with the closing of the American session and still call it a day trade. The only condition of this method is not to leave the open position overnight.  

Strategies for day trading at forex

Although this way of trading may seem petty, when executed properly, it can bring palpable profits without unnecessary risks. The keys to profiting from day trading are the placement of many orders at once and the application of tested trading strategies.

Trend-following trading

It is probably the easiest strategy if you have patience and the habit of careful price observations. You can look at the long-term charts, find the prolonged market pattern for the given currency pair and exploit the brief price fluctuations within this trend. If you observe carefully you will be able to predict if this price spike is temporary or a part of the bigger picture, and if there is any profit in buying/selling at a given point. This is the method where technical analysis presents its full splendor.

Method of scalping

This strategy is not as scary as it sounds. Instead of placing few orders for large volumes of purchase or sales, day traders open and close many orders of smaller scope in the same trading day. The rationale behind this strategy is not following the bigger trends but catching the tiny price fluctuations that happen frequently throughout the day and last from a few minutes to half an hour. Multiple orders that succeed in catching these price fluctuations can bring rather impressive financial results in a single-day trading session.

Fading

This strategy is risky, so it can be recommended for experienced traders with ‘the gut feeling’ and nerves made of steel. This strategy assumes that a trader knows the current trends and can predict when the trends reverse. The plan is to sell when the price grows and then buy back when the price falls. The key is to do so before the trend reverses. This strategy relies on ‘the gut feeling’ and understanding of the current news and economic events and their short-term impact on the markets. Risks are high, but so are short-term gains.

Momentum trading

This strategy also requires a good understanding of the economy and its impact on the forex market. Yet it is not that risky and looks more like a traditional investment. Single out a particular trend that is assumed to continue due to a wider set of circumstances, buy the currency pair linked to it and wait till the end of the day session.

Range trading

This approach also requires knowledge of trends and patterns of the daily behavior of currencies. If there are no major perturbations in the world and the economy chugs along, these patterns will repeat. Knowing the support and resilience levels of the currency, you will know when to buy and when to sell the chosen instrument to make use of its daily fluctuations.

Daily pivot

This method also relies on knowing trends and points to enter and exit the trade. These points are calculated based on the 5-point system that includes price references of the previous day. Pivot points provide information about trends, potential support and resistance levels of the next day, and other useful insights.

Why is day trading so popular with the majority of traders? Forex is a very volatile environment where the situation can change drastically overnight due to economic or political events. Even the sensational piece of news published in the evening can impact the currency exchange prices significantly after the sessions are closed. Hence, what yesterday looked like a very promising trading position can become a financial disaster the next day. For this reason, traders prefer to deal in day trading, where predictions are easier to make and losses can be cut early. With skills in technical analysis, discipline, and persistence, you’ll be able to do day trading successfully, too. 

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