Forex day trading is a method of FX trading in which trade positions are opened and closed within the same trading day. In forex, this corresponds to a time period of between 9pm GMT to 9pm GMT the next day. Positions are not held overnight and there is no rollover swap charge on the trader’s account.
The forex market is particularly suitable for day trading for the following reasons:
- Transaction costs are minimal and are far less than what traders would pay if they were trading stocks, commodities or options.
- The forex market features pairs that can reasonably move in price ranges of up to 100 pips on the average, thus allowing some reasonable profit to be made.
- More and more forex brokers are accepting day trading as part of trading styles used in forex and are lifting restrictions that they placed on day trading in years gone by.
- The market is a 24-hour market which spans three time zones, with two areas of overlap where the market activity is highest. A day trader in any part of the world will surely have an opportunity to trade within at least one period of overlap within the 24-hour trading period.
Most forex day trading utilizes the one hour chart for trade analysis. The emphasis is to profit from short term movements in the forex market. While day trading can be done manually, there are software for day trading which can produce results which are superior to those obtained using manual trade techniques.
How to Start Day Trading
The first step will be to decide whether to day trade manually or whether to go with a software for day trading which will do the job automatically. This is important as it will determine how you will proceed with your account opening process. If you are not very sure as to which of the two options is suitable for you, then a few day trading tips here are in order.
- Many people have to work several jobs to make ends meet. Day trading involves using short term trades to make money in forex. This will warrant more time spent on charts and on the trading station. Not many people have the luxury of such time at their disposal. So is it best to day trade manually in this circumstance? This is definitely not the way to go.
- Using a software for day trading creates the time you need to do other things and reduces the time you spend on the computer chasing market opportunities. So if you have a day job which takes a lot of your time, then you have to consider using automated trading software for day trading.
- One of the day trading basics that no one will teach you is that such trades have to be spot on because they are of short duration. There is usually no time for such trades to recover if they start going bad. So it is usually a better option to use an automated trading robot which can deliver satisfactory daily returns.
- There is added pressure in short term trading. Therefore, emotions tend to run very high. Trying to day trade under such an emotionally charged atmosphere will only lead to trade losses. But using an automated robot which operates devoid of any emotions will take this negative factor out of the equation so that trades are only done based on the algorithms on which the EA has been modeled.
Some Day Trading Tips
From these day trading tips, it can be seen clearly that the way to go if you want to make a success of day trading is to go the automated way. So if you make up your mind to follow this route, then these are some of the things you need to put together to start day trading.
- Assemble your trading capital. The amount you use as trading capital matters. You must understand that short term day trading does not yield so many pips at once. Many currency pairs have intraday ranges of between 50 and 200 pips. So while the number of pips that an automated day trading robot may make will be the same across all accounts it trades, the monetary value of those pips will differ. Clearly, those with more capital will see the robot using larger lot sizes for their trades and therefore more money per pip. If you are to use a US brokerage, you will need at least $25,000. While this is not a gold standard across the world, it gives you an idea of what you should be aiming for when it comes to account trading capital.
- Some software allow you to adjust your risk management settings before starting to day trade on your account. Use low risk settings. It is better to use low risk settings on an account with high capital, than to use high risk with small capital. The account with higher capital and lower risk settings will withstand a season of losses better. Risk applied to accounts that are used for day trading must never exceed 3%.
- Traders who typically engage in forex day trading tend to use high leverage. Leverage magnifies profits beyond what should ordinarily have been earned, but they also compound losses. You simply cannot afford such compounded losses in day trading, so you should aim to use an automated software for day trading that trades your account with no leverage. That way, losses are far better controlled than they would be if the FX account is leveraged.
Conclusion
There should not be a complicated approach on how to start day trading. With a good robot in place, all you need is to select the managed account service that can deliver good returns with minima losses, fund your account adequately and you are good to go.
