Forex day trading is one of the most popular trading strategies among new and expert traders alike.
Day trades are a great way to make faster returns. However, many beginner-level traders find it intimidating, and it should be as there are many things that you need to learn and practice before betting on real money in the market.
From strategy and market knowledge to emotions, there is a lot that goes into making a successful forex day trader. If you enter the day trading scene without any of this, there is a high chance for you to lose all of your money.
So how to start forex day trading? Where to start learning when you are on the self-learning route?
In this guide, we share it all.
Table of Contents
What is forex day trading?
Forex day trading, also known as intra-day trading, is the practice of opening and closing forex trades within the same day. This method is also popular inside the stock and index market spaces and allows traders to make small but frequent profits constantly.
With forex day trading, traders can capitalize on the small market movements by trading once or multiple times a day.
The art of forex day trading requires the trader to dedicate their time and focus toward understanding the minor changes in the forex market.
With the information at hand, traders then have to make quick decisions and execute several traders in a single day to stay competitive within the market. This makes forex day trading not suitable for traders that engage in trading as a side hustle.
The high liquidity of forex makes it a great option for day traders to take part. As with any other trading method, what you need the most is market knowledge.
When done correctly, forex day trading can be a trading method that can be very profitable depending on the work that you put in.
Forex day trading basics
The first thing you should do when it comes to forex day trading is to understand how it works and the basics of it. Here the basics of day trading do not differ much from the traditional trading method.
As you should know by now, there is no set path to take to achieve success within the forex field. So the best thing to have with you is forex knowledge. With enough knowledge, you can adapt to various changes and strategies that you might see fit.
When it comes to forex day trading, the commissions and fees for keeping overnight positions, as in other approaches, do not show up here. These are called swaps, and you don’t have to worry about them in intra-day trading.
While the risks of trades increase with the price fluctuations that happen sharply throughout the day, the overnight risks stay the same. The best way to counter this is by implementing a good forex day trading strategy that can help minimize the risk that a trader might face while making trades.
Since day traders do not take the overnight price change factor into much consideration, it is wise to use a strategy that can negate any losses.
The forex day trading community forms up a large portion of the entire forex space. This directly implies that day traders account for an integral part of the daily trade volume, thus increasing the liquidity of the forex market.
When you have the basics of forex day trading in your grasp, then you can move on to the next step of the process. On the same note, let’s take a look at what can affect the behavior of the intra-day market.
Factors that affect the behavior of the intra-day market
Forex day traders have to take part in many trades within a day to keep earning profits. Because of this, traders have to pay a lot of attention to potential causes that can affect the price movement on a given day.
Due to the short time frame, that day traders have to take action, it is vital to make the best trading decisions to help the success potential of the trade.
Many factors can affect the state of the forex market moving up or down. Some of them are,
- Trends: The price movement of the forex market can change heavily with the trends and developments in the market. Many traders use trends as a means of speculating the price movements of the market within any given day. In addition, many trading strategies also use trends as their primary focal point to base their tactics around.
- Liquidity: The liquidity of a certain market shows how easy it is to find trades and change assets into money. High liquidity is one of the most important factors that can work in favor of day traders. Since day traders have to pull off multiple trades within a day, they can use high liquidity to quickly find and complete trades.
- Volatility: Forex is a financial market that is heavily involved with high volatility. Volatility can quickly change the state of the market up or down. Because of this, to thrive in the forex trading scene, you will need to have good risk management. For forex day traders, rapid price movements created by volatility can create many trading opportunities.
- Trading volume: The measure of the times an asset gets bought or sold in the market is what’s known as the trading volume. If an asset is very active in the market, its trading volume will have a bigger value. This allows day traders to understand and target assets with high trading volume to further increase their chances.
What do you need for forex day trading?
You can enter and exit a large financial market like forex as you wish. To start forex day trading on the right foot, you will need some factors to aid you.
You must first try to understand what you want before stepping into the market. They are,
A good understanding of the dynamics of the market in day trading
To become a stable forex day trader, you will have to have a solid grasp of the market and its nature. This will allow the trader to see the marketplace from a different point of view and understand what they can benefit from.
Moreover, traders can easily identify and monitor technical and fundamental indicators to gain insight into the forex market.
Disciplined and well-thought-out approach for forex day trading.
As in any part of life, being disciplined and thoughtful can help you go a long way in forex as well. If you approach forex trading without any discipline, it would be like a gambling activity.
To ensure long-term success, make sure to be disciplined and follow a working strategy. Traders must also have a keen eye to monitor asset prices to take decisive actions to be competitive.
Being a disciplined trader will allow you to steer clear of emotionally charged trade actions and be a better trader.
A forex day trading strategy that matches your preferences
Rather than making wild and impulsive trades, taking action according to a forex trading strategy will yield better results. Trading strategies can allow you to avoid difficult market situations and stay on top of the game.
There are a large number of strategies available for choosing, and it’s up to you to select the one that matches your preferences. We will talk more about forex day trading strategies in a bit.
A reliable broker that suits the day trading style
Forex brokers are who provide traders with the platform on which they make their trades. With the correct broker, you will gain access to many great forex trading tools. These can help you in a great way to aid your trading career.
Important: When you are selecting a broker, make sure that they are regulated, offer competitive fees, and have access to the tools that you need. Since the platform brokers offer are where you will be spending most of your time, you need to think long and hard before selecting one.
- Forex day trading strategies: Ask any expert forex trader if it’s possible to become a successful trader without a good strategy. They all will say that using a forex trading strategy is the best way to survive the forex market. Here are some of the most used strategies in forex day trading.
- Trend trading: The way trend trading works is by understanding and speculating in the direction of the price of a certain asset. Then buy or sell assets according to the speculation you just made. Such trades are usually open until the trend prevails.
- Scalping: The scalping technique refers to trading currencies with only a brief holding time and making multiple trades each day. Scalpers focus more on the win rate than the earned profits of the trade.
That way, this strategy aims to make large profits by doing a large number of small trades in a small period of time.
- Swing trading: This strategy focuses on taking advantage of short-term price patterns assuming that prices never go in one direction in a trend. Swing traders aim to profit from both up and down movements of the forex market.
- Mean reversion: The mean reversion is a strategy that is based on assuming that the price of assets will return to the historical mean. Traders who use this strategy use technical analysis to find out assets that have differed considerably from their historical mean.
- Money flows: This forex day trading strategy shows whether an asset might be oversold or overbought. To calculate this, traders use the volume as well as the price of an asset. This strategy works by comparing the trade numbers of the current day with the previous day.
How to start forex day trading?
Since you know most of the basics of forex day trading, you might want to start day trading yourself. If this is you, we have prepared a step-by-step guide for you to get started with forex day trading.
1st step – Choose the method of forex day trading.
The first thing that you should focus on when starting day trading is deciding on an asset class to trade. The most widely used asset class for day trading is Derivatives. Since there is no need to own the underlying asset, opening and closing trades become much easier. This fast trade time makes derivatives a top choice for forex day traders.
2nd step – Create a plan for day trading
Understanding your expectations of forex trading are the first step in creating a plan for you to follow. Set realistic and achievable goals depending on your needs and plan.
When entering and exiting the market, do fundamental analysis, which follows market news and trends, or technical analysis, which uses analytical information on charts and patterns, or a mix of both.
3rd step – Managing forex day trading risks
Since the forex market success comes by overcoming lots of risks, it’s better to have a risk management strategy by your side. With dedicated measures to prevent the worst-case scenario, traders can minimize the potential risks of forex day trading.
4th step – Begin your forex day trading career.
Once you have all the necessities and have done all the preparation steps, now all that you have to do is trade. Since we are talking about forex day trading, it is wise if you open both long and short positions. Then record your earnings and expenditures to gauge your performance.
Pro Tip: Forex is a heavy subject that has a steep learning curve, so always learn what you can about forex to make better traders.
Forex day trading becomes profitable the more time you put into it since it involves making multiple trades a day.
Derivatives are the most commonly traded asset in day trading. The lack of the need to own the underlying asset makes derivative trades much easier.
Trend trading is the most widely used trading strategy here. Speculating the direction of an asset can improve the chances of success.
Forex day trading allows active traders to make good profits by opening and closing multiple trades on a single day. When done correctly, this method of trading can prove very beneficial to the traders and allow large profits.
But forex day trading requires traders to be more dedicated and allocate most of the day to it. Since you are spending most of your precious time on this trading method, you must leave no room for errors.
We have here in this article what you need and how to start forex day trading on your own. By following what’s in here, you also can become a forex day trader in no time.