Forex Day Trading

Day trading is the type of trading where trades are opened and closed within the same day. though this may not be possible 100% of the time, even if you can manage it say for 90% of the trades, then that strategy is called day trading. Despite its obvious risks and drawbacks, it should be noted that day trading is the most loved type of trading as far as retail traders are concerned. Most of the retail traders would say that they would want to become day traders. There are many reasons why they love day trading. They feel that their job of trading and profit or loss taking is done within the day and they don’t need to carry the burden of having an open position overnight which could lead to stress.

Many traders also like day trading as it gives profits within the day which means that they can enjoy the profits by spending it at night (!!), at least in theory! As long as you control your risks and can devise a profitable strategy, then this should definitely be the case. Also, if positions are carried over overnight or the course of several days, it may so happen that some event might happen or some news might come out which could alter the markets and render the trade and the strategy ineffective and the trader would be forced to take a loss though he might have done the perfect analysis. It is for these reasons that retail traders prefer day trading though stats show that more than 90% of the day traders, whether in stocks or FX, lose.

How Does Day Trading Differ from Scalping and Swing Trading?

Forex day trading is different from scalping and swing trading in a variety of ways. One is that the timeframes for which the trade is open are very different. While day traders are generally open for an hour or two, scalp trades are generally open for less than 1 or 2 minutes only. Likewise, swing trades are open for several days in fact which shows how different each type of trade is.

Also, for the traders, while doing technical analysis for their entries and exits, the day traders generally using the M15 and the H1 charts while the scalpers using the M1 and M5 charts. Of course, there is no such rule on what type of charts of what type of analysis needs to be done but this is the general rule of thumb. The swing traders use the H4, D1, and Weekly charts for their analysis as the timeframes for their trades are much longer.

Likewise, the profits and losses also vary widely. While day traders would be happy with around 20-30 pips as profit, scalp trades generally look for 3-10 pips while swing trades are generally those that aim for 100-200 pips as profit or even more.

As can be seen, the types of trades vary widely and it is all a matter of personal convenience as far as the trader is concerned and he should always choose that type which suits his personality. For those who are still wondering how to day trade forex, read on.

How Does Forex Differ from the Stock Market Day Trading?

Day trading in forex is quite different from that in the stock markets mainly because the stock markets are generally open only for around 8 hours in any part of the world. So, all the liquidity and the volatility for the day is packed into that 8 hours only. On the other hand, the forex market is open 24 hours a day which means that the various instruments have a lot of time to complete their daily ranges and there are likely to be long periods of several hours in a day when the market is dull and does not move much which means that in these periods of time, the traders would not be getting many chances to trade.

So, the type of analysis would vary a lot and the trader needs to be very careful in the FX market as the volatility could return at any point of time during the day. In stock markets, since the market is open only for 8 hours, it is enough if the day trader is focussed on these 8 hours alone and it is easy for him to concentrate on the stock markets during this time knowing that he can pack his bags and relax once those 8 hours are complete for the day. But this is not the case with FX trading as the market is open 24 hours and the volatility could happen at any point in time.

This is why the FX day traders must find out times of the day when the market is very liquid and when they should be paying maximum attention to the market. Generally, the market is very active from the start of the London session to the close of the London session with the 3-4 hours when the London and NY session overlap, being the most liquid part of the day. The traders need to keep in mind these timings so that they need not keep focussing on the market for all the 24 hours of the day that it is open and can choose only a few hours where he should be paying full attention to the market and looking for trades.

How to Determine the Minimum Capital to Start Day Trading Forex

This is the next challenge that the retail trader who wants to do day trading, faces, and the answer is not very straightforward. It all depends on how much risk the trader is willing to take for his trades. Irrespective of whether the trader chooses to go for day trading or scalping or swing trading, the risk-taking capacity should not change much. His risk management should remain pretty much similar and only the trade size should be varied depending on what his take profit and stop-loss would be. The amount of profit or loss should not change with the type of trading and hence the risk percentage allocated for every trade should also not depend on whether he is day trading or not.

Another factor to consider while determining the capital that he should be using is how much he can risk. No trader should put in more funds than what he can afford to and it doesn’t make sense to put your life savings into trading. There have been so many instances of how traders have risked their entire savings and lost their accounts and savings within a few days. This is not really worth it and though this proposition may seem attractive at some point in time, traders should never encourage this line of thought.

Why do Some Experienced Traders Prefer Long-Term Trading to Day Trading?

As we had mentioned before, while some continue to wonder how to day trade the forex market,  experienced traders and institutional traders never opt for day trading. They always insist that the traders should not do day trading as most of the day traders end up losing. Day trading is carried out mainly by beginners and small retail traders though that does not mean that no one else does day trading. There are examples of day traders who have done well for themselves but such examples are few and far between.

One of the main reasons why experienced traders do not suggest day trading is that they believe that day trading puts a lot of pressure on the traders day in and day out to enter and exit trades within the day. With this in mind, the trader is always under a lot of stress as he has to open and close trades and with such a mindset, the fear of missing out also creeps in for the trader and this only adds to the pressure. Also, when doing an analysis, it is much easier to analyze a long timeframe than doing it over a shorter timeframe. While day trading, the trader has to rely on the M5 and M15 charts and these have a lot more noise and have a greater chance of not being reliable than the longer timeframe charts like D1 and weekly charts. This noise leads to a lot of false signals and the fact that the traders have to enter and exit trades every day but relying on such unreliable indicators and factors means that they are likely to make much more mistakes.

The day traders may not be able to realize that trades may not be available every trading day. There may be periods of low volatility and liquidity, dull trading, and ranging as well, when the trades may not be available but since the traders are under constant pressure to deliver within the day, they tend to overanalyze and look for signals and possible trades when none exist. So they keep pushing themselves and tend to take signals that are far from perfect rather than wait patiently for the right opportunity and this leads to a lot of bad trades which is likely to lead to losses and blow up the account in due course of time.

Day trading also necessitates that the trader sits at the trading terminal all through the day which defeats one of the main purposes why a trader would be trading. A trader begins his career in trading so that he can be free from pressure and would be able to do what he wants to do and whenever he wants to do anything. But with day trading, the traders are reduced to such a state that they are constantly under pressure and are forced to stay at their trading terminals every day which means that they are never able to achieve what they wanted when they started their trading career.

Forex Day Trading Tips and Strategies

There are many forex day trading systems. If you have finally decided to take the plunge and decided to do day trading in forex, then you need to be very clear with your trading plan. Day trading is not easy and if you enter this without a trading plan, then that’s a sure recipe for disaster. So make sure that you have a good complete trading plan which you can spell out and evaluate objectively with clear entries and exits. You can choose to trade using anything that you are comfortable with. You can trade based on patterns that you see, based on the time of day, or on the breakout or on complex analysis but irrespective of what you do, the plan should be very clear with clear exits.

Day trading in the forex market is not easy. The trading plan should also have been tested very well on a demo account for at least a few months with the majority of those months being profitable overall and the profit should be something that you are comfortable with. If the profits are too low, then there would be no point in trying to replicate that into a real account as then you will see that your profits are lagging and you would try to tinker with your plan in the middle of trading which isn’t very advisable. So have a plan that works and is profitable in the long run and once you are pretty much convinced that you are on the right path with the right trading plan, then you can start day trading.

One of the bad habits that day traders generally fall into is the attraction of trying to keep the positions open for the next day. It should be remembered that day trading means that most of the time, the trades have to be exited on the same day. Of course, there will be occasions when the trade is carried over to the next day but this should only be an exception and not a rule. But what actually happens in the real world is that many a time the day trader would be holding a losing position for much of the day and as the day progresses and it is time to close the trade in a loss to exit the trade by the end of the day, the trader starts dilly-dallying and is tempted to keep it open for the next day. Sometimes, he might even be tempted to keep the position open without a stop loss as well which means that his trading plan has gone for a toss and he exposes himself to a much greater risk than what he had planned to. If the trade continues to be in a loss the next day as well, it means that not only is he underwater, but he will be forced to not trade for that day as he waits for his current trade to recover from the loss which is not only a waste of time for the trader but also a loss for him, in a way.

It is very important that the day trader avoids this pitfall and ensures that he closes the trade during the course of the time even if it means that he has to take a loss occasionally. Of course, if the losses keep happening very frequently, then the suggested measure is to have a relook into his trading plan rather than trying to keep the trade open overnight against his plan.

Day Trading Forex during Covid-19

The last couple of years has been a difficult time for a lot of people around the world with the covid pandemic causing a lot of death of near and dear ones for millions of people. It has changed the world forever and, likely, it will still take a lot of time for the world to fully recover from its effects. It has negative effects on most of the fields and industries and even in the trading world, it has caused the trading volumes to nosedive in most of the cases as the people wanted to save up their money for medical and other expenses as they were not sure whether they would be able to retain their jobs and they were also not sure when the world would open up again.

But as things began to ease up and it became clear that lockdowns were the way forward as far as controlling the spread of the virus was concerned, the stress that the people were under began to ease steadily and this has led to people looking for avenues to make money while being in a lockdown and sitting at home. This has led many users to look at day trading seriously during this period.

The users have begun to feel that day trading could be an ideal choice to augment their income while sitting at home and for many users, it was also a way to get their mind off the boredom that had set in during the lockdown. This was what exactly many had wanted and day trading began to slowly pick up pace across the world as the pandemic begins to slowly recede. People were sitting at home and they didn’t have much else to do other than their jobs and their household chores and many of the users chose day trading to get their minds off their monotonous lives. Of course, day trading is never easy and, likely, most of the new traders who picked up trading during the pandemic period might have ended their trading career with their accounts blown but it did provide a good opportunity for a few others to explore the different world of trading and come out successful in that as well.

Is Day Trading for You?

After all the analysis and reading, it all comes down to this for those who still are wondering how to start forex day trading. Whether day trading of forex is for you or not is something that only you can decide for yourself. We have always been saying that the time of trading that you choose should be very closely associated with your inborn character. If you choose a trading type that is opposite to your character, then it means that you are going to struggle all your trading career trying to alter your character to the trading type that you have chosen and that is only going to add to your problems and stress in the long term.

If you are the kind of person who cannot wait for days for a trade to end in profit or loss, then day trading is probably for you. If you are not able to digest seeing the profits and losses swing from one end to the other during the course of several days, then day trading is probably for you. If you want to see things end up quickly, one way or the other, then it is likely that day trading is for you. If you can spend a fixed number of hours at fixed periods of time every day and you don’t mind doing that day in and day out, then day trading is probably for you. If you are good and fast and reliable at spotting patterns and doing analysis and are a quick thinker and can hold your attention for several hours together, then day trading is probably for you. If you are all this and more, then try your hand at day trading and see if you can come up with a profitable trading strategy that works for a considerable period of weeks and months, and then you can decide to take the plunge.

Conclusion:

To conclude, day trading is just another form of trading that may or may not suit you, just like scalping or swing trading. Whether it suits you or not is totally up to you and it is for you to decide. Though day trading is generally not advised for small traders and beginner traders, there are still a lot of people who do day trading in different markets and different instruments and some of them are indeed very successful in the long run. Evaluate what type of a person you are and what you can do and cannot do and then decide whether you need to take the plunge or not.

Though others may be losing, it might just turn out that it suits you very well based on a specific market and a specific instrument and you might turn out to do well in day trading in the long run while others might continue to lose. But if you are a beginner, we would say that you can start with swing trading so that you can improve your analytical skills and once you are confident that you can do well and confident that you can tackle any kind of trading situation without getting stressed out, then maybe that is the time for you to try your hand with day trading. Be very careful though and if it doesn’t work out for you, then there is nothing wrong in accepting defeat and switching to a type of trading that suits you and is profitable for you.