This article will provide traders with definitions of day trading and intraday trading, it will explore different day trading systems, how traders make profits with day trading systems, some suggestions for the best Forex day trading systems, and some useful tips for you to use in your daily trading.
Intra-day trading is a set of Forex day trading strategies that demands professional traders to open and close trades on the same day. Considering that markets can only move so far within one day, intra-day traders use relatively riskier trading techniques to accumulate their desired profits.
Day trading Forex strategies are more action packed and require traders to be present at the trading station throughout the session. It's widely accepted that the narrower a time frame a trader works within, the more risk they are likely to be exposed to. That's why day trading can be described as one of the riskiest approaches to the currency markets.
It's not really the different Forex trading strategies that day traders have to use that increases the risk. In fact, the overall logic is the same for almost any interval out there. Rather, it is that Forex day trading rules tend to be more harsh and unforgiving to those who don't follow them.
The two factors that no intra-day trader can do without – irrelevant of the Forex day trading strategy they intend to use – are volatility and liquidity. It might seem like a good thing for any kind of trader, but short-term traders are far more dependent on them. Volatility is the magnitude of market movements. When trading short-term, solid volatility is a must.
This basically reduces the selection of instruments to the major currency pairs and a few cross pairs, depending on the sessions. Speaking of sessions, since volatility is session dependant, knowing when to trade is as important as knowing what to trade. Liquidity is equally important. Intra-day trading is very precise. A long-term trader can afford to throw in 10 pips here and cut 10 pips there. A short-term trader can't, because 10 pips could be the whole profit projected for a trade.
This precision in Forex comes from the trader's skill of course, but rich liquidity is important too. If there is no liquidity, the orders will simply not close at the desired price, no matter how good the trader is. This once again limits intraday traders to a particular set of trading instruments and trading times.
Scalping is a day trading Forex strategy that aims to achieve many small profits based on the minimal price changes that may occur. Scalpers go for quantity trades, opening almost 'on a hunch', because there is no other way to navigate through the market noise. Scalping can be exciting and at the same time very risky. Scalpers must achieve high trading probability to balance out the low risk to reward ratio. Probably the hardest part of scalping is closing losing trades in time.
A scalper simply can't afford to wait for the market to come back.
If you are aiming to become a scalper, consider developing a sixth market sense – look for volatile instruments, good liquidity, and perfect execution speed. If mastered, scalping is potentially the most profitable strategy in any financial market. It is only the adjacent risks that prevent it from being the best Forex day trading strategy.
Reverse trading is also known as pull back trading, counter trend trading, and fading.
The risk comes from the basic principle of trading against the trend. A reverse trader has to be able to identify potential pullbacks with a high probability, as well as to be able to predict their strength. Although not impossible, it does require a lot of market knowledge and practice. The 'Daily Pivots' strategy can be considered a special case of the reverse trading strategy, as it specialises in trading the daily low and daily high pullbacks and reverses.
This is a pretty simple day trading Forex strategy that specialises in searching for strong price moves paired with high volumes and trading in the direction of the move. A high level of trading discipline is required in momentum trading, to be able to wait for the best opportunity to enter a position, and maintain solid control to keep focus and spot the exit signal.
Day trading is often advertised as the quickest way to make a return on your investment in Forex trading. However, what the the adverts fail to mention is that it's the most difficult strategy to master. As a result, many beginner traders try and fail. Through years of learning and gaining experience, a professional trader may develop a personal strategy for Forex day trading.
A Background of the Forex Day Trading System
Forex day trading is strictly carried out within one day, and trades are always closed before the market closes on that same day. Those who trade in this way are referred to as day traders. A Forex day trading system is usually comprised of a set of technical signals, which affect the decisions made by the trader concerning buying or selling on each of their daily sessions. The system can help traders to navigate the market much more efficiently and confidently, with the aim of allowing them to gain more profit.
In the past, the activity of Forex day trading was limited to financial organisations and professional speculators. The majority of day traders were the employees of banks or investment firms, who specialised in equity investment and fund management. However, with the introduction of electronic trading and margin trading systems, the day trading system has now gained popularity amongst 'at-home traders'.
With easy access to Forex trading, now almost anyone can trade Forex from the comfort of their own homes. People choose to go into day trading for various reasons. However, a factor which is likely to have made this activity much more popular over recent years is the fact that day traders do not incur the 'Swap', which is a fee that is incurred when a position is kept open overnight.
Day traders leverage large sums of capital to make profits by benefiting from small price changes among the highly liquid indexes, stocks, or currencies. In other words, these traders are not looking for large dips and peaks in the prices. Instead, they are happy with small, moderate movements, but their trade sizes are bigger than the ones owned by traders that invest over longer periods. As a day trader, the main aim is to generate a substantial amount of pips within a particular day.
Ideally, you should generate returns on both the highs and lows of the assets. The entries in the different Forex day trading systems make use of similar kinds of tools which are utilised in normal trading - the only difference is in the timing and approach. With day trading, you generally expect to make less profit per trade, yet you expect to achieve far more trades.
There are many different Forex day trading systems - it is important not to confuse them with trading strategies. The main difference between a system and a strategy is that a system mainly defines a style of a trading, while a strategy is more descriptive and provides more detailed information - namely entry and exit points, indicators and time-frames. A brief overview of some of the most commonly used systems is given below (Please note: scalping, fading, and momentum are also trading strategies as well):
Let's take a look at some common day trading strategies that can be used by retail traders. (For more, see: Tutorial: An Introduction to Technical Analysis.)
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