Throughout the Forex market existence, traders have come up with dozens of different strategies that help them succeed and earn a decent income. However, all these strategies can be divided into three categories: long-term, short-term, and scalping. Day trading is a short-term type and involves opening and closing trades within one day.
Most often, such trading is chosen by market participants who treat Forex as their daily job. The strategy involves active involvement but is still not as intense as scalping. Most often, traders manage to open and close only one position during the day.
High market volatility allows you to catch significant price movements and make a profit without long waits. Perhaps this is why day trading is the most popular style among Forex traders. This article examines the features of this strategy, its advantages and disadvantages. Also, after reading, you will get a step-by-step plan and detailed recommendations to start day trading.
Key Characteristics of Day Trading on Forex
In some sources, you can find the term "Intraday trading." These concepts are interchangeable and have the same meaning. The basic characteristics of this method are as follows:
- The trader keeps the position open for no more than 24 hours. This allows you to avoid swap costs.
- The most popular time frame for analysis is H1. However, for additional confirmation of signals, traders often use M30 and H4.
- Intraday trading allows you to earn without a large deposit.
- Unlike scalping, the position usually remains open for several hours, which gives the trader time to analyze the situation and use the necessary technical tools carefully.
- There is virtually no price noise, which is common for shorter-term strategies.
- Brokers are more willing to work with day traders than with scalpers.
- Volatility on some day trading currency pairs can reach 10% during the day.
The Forex intraday trading strategy is a popular choice among beginners. Firstly, it requires attention to the market and helps quickly gain important experience. Secondly, the intraday method allows starting earning today with a modest deposit.
High-Frequency Trading
Sometimes, another strategy is included in the day trading category — high-frequency trading (HFT). Technically, it also involves making transactions within a day but has completely different features. For example, HFT usually uses automated algorithms that open and close positions without direct human intervention.
Of course, high-frequency trading requires appropriate equipment and software. To make tens or hundreds of trades per day, remote servers with high-speed Internet are usually used. Also, traders use advanced robotic algorithms that consider the smallest movements in the market and analyze dozens of factors. Usually, the HFT strategy is used by large players (hedge funds, banks, and other institutions with a lot of resources).
Short Holding Periods
For successful day trading, it is important to understand what a holding period is. This is the time between opening and closing a trade. For example, if you open a long trade in the morning and close it in the evening, the holding period will be those few hours between the purchase and sale. As mentioned above, with a forex day trading system, the holding period cannot be more than 24 hours. Typically, traders hold a position open for up to 10 hours. However, with high volatility, this period can be shorter.
Intra Day Volatility
Intraday volatility is a source of income for traders. It is the difference between the maximum and minimum prices of an asset and is actually the maximum profit value. Experienced Forex market participants know that to trade successfully, they should look at the charts and analyze external factors that cause market volatility. This allows them to see the beginning of a new trend in time and open a position.
Popular trading pairs, such as USD/EUR, rarely have high volatility. Some traders prefer rarer assets with fluctuations of up to 3-5% and even higher. However, the high liquidity of popular currencies also opens up opportunities for stable earnings. The main thing is to understand the features of a particular asset well and not give in to momentary emotions.
What Do You Need to Be a Day Trader in Forex?
The choice of a trading strategy is often determined by psychology and individual preferences of a person. If you are not ready to wait a long time and want to quickly see the results of your work, day trading Forex may be the ideal option for you. It is also suitable for attentive traders who like to analyze the market and make informed decisions.
If this description matches your character, you can start taking the first steps. The general plan looks like this:
- Study brokers. You need to have a good understanding of how brokers work, what conditions they provide for beginners, what initial deposit you need, etc. Compare offers by all possible parameters (spread, leverage, additional services). Choosing an intermediary is an important step that determines the success of future day trading.
- Study the market. Analyze price changes of the main currency pairs over the past few days. Determine the average and maximum volatility during the day. Read reviews and forecasts of experts, and see how accurate they are. Before making a deposit, you need to understand how you will trade.
- Study the trading platform. Trading cannot be started without understanding the functionality of the platform. You must be able to use the main indicators, change timeframes, and know the key patterns of Japanese candlesticks. You may need to take a training course or some consultations.
- Determine capital. If you are a beginner, we do not recommend borrowing money to start your journey in Forex. The deposit should be affordable for you. This will relieve you of unnecessary responsibility for your capital and allow you to trade without emotions.
- Strategy. Any Forex daily trader knows that trading without a strategy rarely leads to success. Think over a plan and your actions in different situations. Improve your strategy and continue moving towards your goal.
Intraday trading is a profitable style that can bring you a decent daily income. However, it also requires Forex knowledge, hard work, and good preparation.
Tools and Resources for Day Traders
Today, trading is impossible without technical tools and digital resources. Your resource base can be divided into two parts: hardware and software. Let's start with the physical devices that a day trader needs:
- Personal computer. Since the speed of execution of trades is important, you will need a PC with enough RAM and a decent processor. This will also allow you to connect more than one MT4/5 terminal.
- Smartphone. Intraday strategy requires you to quickly respond to market changes. Therefore, it is important that your mobile device also has a trading platform installed. Another advantage is notifications about price movements. They allow you not to miss a signal and not lose a significant part of your profits.
- A high-quality router and high-speed Internet. Data transfer speed and a stable connection are necessary for traders. This is especially important when you need to open and close positions quickly.
- Remote server. If you have reached a certain level, perhaps you want to scale and connect additional terminals. A quality VPS will allow you to trade without restrictions. It is also useful if you travel and do not want to stop trading.
In addition to physical devices, you will need digital resources, such as analytical programs or a trading environment. Let's consider them in more detail:
Trading platform. Most traders choose Meta Trader 4 or 5. They contain the necessary technical analysis tools and can be upgraded.
Expert advisors. These are compact programs that search for and analyze trading signals. These best Forex robots work much faster than people and, if used correctly, can significantly increase your profits.
Additional indicators. Some advanced tools cost money and can be installed on your MT4 platform. They can give more accurate signals.
Analytical resources. To find information about the market, you may need reputable sites with fresh analytics.
FX day trading is an exciting profession that takes time to acquire. However, with basic resources such as a computer, Internet, and a few programs, it will allow you to earn a living and ensure financial stability.
Min Amount to Start Day Trading on Forex
The minimum amount for trading is always related to two factors: profit goals and risk management. The higher the goal, the more solid the starting capital you need. However, the level of risk tolerance also determines the initial deposit and trading strategy.
If you are a beginner trader, a good option would be to start with a demo account. This will allow you to test the strategy and understand how much money you need to achieve your goal. However, demo trading is only the first step, and for real earnings, you will need investments.
When calculating the amount, it is important to remember that the broker provides leverage. Different brokers and service packages can have ratios of 1:500, 1:1000, 1:2000, and sometimes even more. This means that with a deposit of 100 US dollars, you can trade from 50 to 200 thousand.
Next, you need to look at the average exchange rate fluctuations on the currency pairs you have chosen. Of course, you will not use the entire deposit for one position — this should also be taken into account. As a result, you will receive an amount based on your goals, preferred assets, and risk tolerance.
Many beginners begin their journey in Forex with several hundred dollars. This is usually considered the minimum amount to start. However, if you have ambitions, it is better to increase the capital to at least several thousand US dollars as you gain experience and knowledge.
Forex Day Trading Strategies
Forex intraday trading is a general concept. You are limited only by the daily time frame, and all other aspects of trading can vary. We suggest you consider several approaches to such trading:
- Scalping. This is the most dynamic strategy, in which a trader plays on small time frames of up to several minutes. At the same time, the number of transactions during the day can be significant.
- Range trading. With it, you seek to determine the support and resistance levels of a currency pair and trade in the interval between them.
- Analytical trading. Traders analyze market sentiment and various economic and political incentives to predict the direction of the price.
Of course, there are dozens of other approaches to intraday trading. You can combine, supplement, and improve them.
Risk Management in Day Trading
To effectively manage risks, you need to understand what you can expect during day trade Forex. Here are some negative factors to consider:
- Sudden change in trend to the unfavorable side due to breaking news. To prevent large losses, it is recommended to use stop losses.
- Late opening of a position can lead to minimal profit or even loss. Use more technical analysis tools for a more accurate assessment.
- Technical problems. At the most inappropriate moment, the power supply or the Internet can disappear. Use UPS and always have backup sources of the Internet.
- Human factor. Oddly enough, emotional decisions are among the most common causes of financial losses. Try to follow your strategy and make decisions based on facts.
Risk management is an important part of trading, and these tips can help improve it.
Forex Day Trading Rules and Tips
For the most profitable trading, you can use these Forex day trading rules:
- Determine the instruments that you will use in your strategy.
- Determine the priority of indicators (primary and secondary) when making decisions.
- Be sure to set stop-loss and take-profit orders.
- Determine the patterns you will focus on.
- Wait at least half an hour after the market opens before opening a position.
- Do not open trades during news releases.
- Start trading with a minimum deposit and do not risk too much until you gain enough experience.
Experience is the basis of success in Forex. Using these tips will help you get the necessary practice without big losses.
Common Forex Day Trading Mistakes to Avoid
In addition to knowing what to do, traders should understand what not to do. Here are some popular don'ts when day trading:
- Don’t try to offset losing trades by opening too large new positions.
- Don’t open a position too early expecting some news effects.
- Don’t risk a large part of the deposit on one trade.
- Don’t expect too much. Trading requires skills that come with time.
And finally, don't be afraid to make mistakes and learn from them. This will help you quickly become a professional. Now that you know what is day trading forex, let’s wrap up the information.
Advantages and Disadvantages of Forex Day Trading
Before we conclude this review, let’s summarize the pros and cons of day trading. Let’s start with the advantages:
- No swaps. Trades are opened and closed within one day.
- There is time for analysis and informed decision-making.
- Psychological satisfaction from quick profits.
Also, some disadvantages are obvious:
- The spread in intraday trading can affect profits.
- There are significant risks.
- Trading requires a lot of attention and time investment.
As we said earlier, day trading requires certain prerequisites and preferences. Still, today, 24 hours is the favorite working period for most traders.
The Bottom Line
Day traders can earn good money and profit from price fluctuations every day. In this article, we looked at the features of this trading style and gave a step-by-step plan for getting started. Before you begin, you need to weigh the pros and cons and prepare well. Of course, there are risks, but knowledge, experience, and interest in Forex will help you make a successful and profitable career.
