Understanding Forex Day Trading
Forex day trading is a feasible option for traders who want to trade short-term but find scalping too rapid and stressful. Scalping includes buying and selling currencies as soon as the trade comes in profit, appropriating small profits. A lot of trades are placed beside each other in the scalping system. This racks up the trading fee.
Forex Day trading, by definition, refers to buying and selling of the exact currency within the account of margin. Therefore, the central concept behind forex day trading is to identify one or few opportunities that can offer a large payout, rather than making small gains out of a large number of pips in scalping.
The forex day traders tend to close their trades and positions at the end of the day. They do not hold their trade overnight or for more days to come. This aids the reduction of risks and also decreases costs.
Forex day trading accounts for a lot of risks. For this reason, it is recommended for beginners and new day traders to practice day trading on demo accounts provided by brokers.
Everyday news releases are essential for day traders. These news releases can result in price fluctuations and indeed, volatility in the forex market, which can provide more opportunities to fore day traders. Day traders also essentially follow the trends. And traders who have been in the market for longer duration also use charts support and resistance levels, and other tools and strategies to predict the trend in the chart.
Forex day trading strategies
Closing trades and positions at the day end
The forex day trading strategy of closing all trades and positions at the day end has two core benefits for day traders.
First, the forex market is open 24 hours a day. If traders hold trades and positions overnight, there could be significant changes happening in the forex market before the day traders go back to the realm of the market. When the trade in the United States closes, it’s still; functioning in Japan or Australia. During the overnight holding period, there ought to be some economic and political news releases taking place that the day traders might be unaware of.
This could create a significant impact on currency pairs. So day traders might lose out on their positions while they are away from the market. Therefore, when day traders close all their trades and positions at the day end, they are protecting themselves against possible risks.
The second significant benefit of closing trades at the end of the day is the reduction in costs and rollover fees. Brokers in the forex market account for rollover fees from traders to hole the trades and position overnight on many currency pairs.
Following the trend
There are traders who try to predict breakouts, reversal, and use other techniques to predict forex market movements.
But for new day traders and beginners, such techniques can be overwhelming and hard to grasp. One easy and very useful strategy for new day traders is a trend following.
To follow the trend, the traders depict the charts of various currency pairs through moving averages strategy ( simple and exponential moving averages). Traders can confirm downtrends or uptrends of those currency pairs and open trades and positions in reference to the trend.
While using such a strategy to facilitate trade, it is essential to either put stop-loss levels and continuously monitor the market, but one thing must be remembered. In forex day trading, it is not essential to attain a win by 100 or 90 percent. Many professional day traders have 50 to 60 percent winning trades. So to earn considerable payouts, trend following can be a beneficial forex day trading strategy.
News releases trading
Another important forex day trading strategy for beginners can be to pay attention to economic news releases. Understanding the technicality of forex trading, learning about different indicators and tools like Donchian channels, Bollinger bands can consume a lot of time and require in-depth research. At the same time, these technical tools are very subjective in nature and can be interpreted differently by different forex traders. This can be very cumbersome for beginners and new forex day traders.
Instead, why not a new day trader focus on news releases and announcements? Every online financial service provider has an “economic calendar” as one of the learning tools. The economic calendar lists all the latest announcements and economic news. As the pronouncements are out, the real figures and consensus in the economic calendar are also recorded alongside.
By comparing new figures with previous ones, traders can glimpse the whole trend and how the currency pair is functioning in the market.
Another way to analyse the market is by comparing the market data mentioned in the economic calendar with actual figures. If the actual number is lesser than the market data, then the market is more bearish.
In forex day trading, many traders try not to open trades and positions before significant news releases come out. The vital news announcements like CPI (consumer price index), changes in interest rates, growth in GDP (gross domestic product), etc. can lead to significant changes and fluctuation in which the forex market functions. The reason is that the forex market is only controlled by external factors like the political and economic outlook of different countries.
Therefore, it is advisable for new day traders to have patience. They must wait for the market to react before opening the trades and positions.
Practising day trading on a demo account
For beginners, practising forex day trading on a demo account can be an advantageous and learnable experience before entering the real market. This way, the beginners can practice different strategies, make mistakes and learn from them, before investing real money in a volatile forex market. Practising day trending on a demo account can reduce a lot of risks for traders.
New day traders don’t have to lose a lot of money in the real forex market and learn from the mistakes he or she made. Instead, signing up on a free demo account, practising trade with trial and error, learning and gaining experience with virtual deposit can do miracles. This can help traders when they enter the real market.
If you are first-hand in the world of forex day trading and are looking for an authentic broker to facilitate your day trade, we recommend HFTrading. HFTrading is a regulated broker and financial service provider functioning in Australia and New Zealand. HFTrading provides a lot of tools and strategies for day trading. It even provides a demo account to facilitate trade in various instruments like forex, indices, stock, bonds, commodities, and more.
Opening a demo account can help new traders in many ways:
- Demo accounts allow for experimentation with high capital day trading and large leverages in one single trade. One can learn a lot from experiencing such a trade mechanism.
- Forex day trading strategies can be tested on demo accounts. Traders can then facilitate the actual trade with the strategy that twins up with their financial goals of day trading.
- Different currency pairs can be experimented by traders, and then they can choose the ones that suffice their trading goals.
- Traders can also track and trace their profits and losses. They can frame their expectations for actual trade according to them.
- At last, traders can also learn how the forex market works and fluctuates, how the trade can change during significant news releases. A demo account can also help a day trader coping up with the same.
Mistakes to avoid in forex day trading
The practice of averaging down
Day traders often commit the mistake of average down the trades in forex day trading. It is most not intentional but can result in a lot of significant difficulties.
First, it can lead to a loss of the position in the hold. This, in turn, can result in loss of money and time.
Second, the remaining capital now ought to produce large returns to bring back the money lost. Losing massive sums of money in day trading can damage the growth of capital in the long run.
Day traders need to be more cautious about averaging down because opportunities in forex day trading are short-term. Timely exits are recommended to the day traders on poorly performing trades.
Trading in the wake of news releases
A news announcement can hit the market, causing extreme fluctuations. It can be seen as an easy opportunity to make good gains over profitable trades. However, this should not be done without testifying the situation and market appropriately.
Day Traders are advised to be patient and wait for a bit until the volatility lulls out, and a trend sets in the market. This can help in protecting the traders against definitive volatility risks and pave the way to a stable direction of price.
Large capital commitment and massive leverage
Many forex day traders invest large sums of capital or use very high leverage in their day trading. Investing large sums on a single trade can result in massive losses. Avoid such risks in day trading.
Forex day trading can be a beneficial method to earn moderate profits and can sometimes also result in big wins. It is essential to understand the strategies and tips mentioned above and day trade taking them into account.
However, forex day trading involves more stress and risks as compared to long term trading. Also, long term forex trading involves a whole lot of different strategies and styles as compared to forex day trading.
The beginners in forex day trading must research and practise before attempting a trade in the actual forex market. It is better to start with a small amount before diving in deep.