The Basics of Forex Day Trading

Forex day trading has become the rule rather than the exception these days. Many traders are looking to grab quick profits early in the trading session and go on with the rest of their day.

To day trade Forex you must simply open and close a trade all within the same day. If you ask why people would want to day trade Forex you would hear a variety of reasons.

Many traders feel that they can reduce their risk by not having trading positions open overnight. These traders feel that there is the potential that some event may take place which will have a negative affect on their trading position. If they close out all their trades by the end of the day then they can eliminate their exposure to overnight events or news of any kind.

The popularity of day trading and other short-term trading methods increased as real-time Forex data and faster, more efficient online trading platforms became available. Day trading has also grown to be a controversial topic. Many more conservative traders consider it to be nothing more than gambling while other claim that it’s the greatest thing since sliced bread. Whatever opinions people have about day trading there are traders who do it successfully.

Here are a few things to keep in mind if you are planning on day trading:

Transaction Costs – The transaction costs in Forex trading is the size of the spread. The spread is how your Forex broker gets paid. Quite logically, the smaller the spread the better it is for the trader. You may ask, “What does this have to with Forex day trading?”. Good question. Since day traders typically trade more frequently it stand to reason that their transactions cost will start to add up. Here’s a quick example:

Longer-Term Trader – – Spread = 3 pips X 6 trades per year = 18 pips per year transaction costs

Day Trader – – Spread = 3 pips X 150 trades per year = 450 pips per year transaction costs

If everything else is equal for the above 2 traders it’s easy to see that the day trader’s transaction costs are a much larger percentage of their profits.

The moral of the story here is that if you do day trade make certain that your Forex trading system will yield a profit AFTER all transactions costs.

Forex day trading can be incredibly profitable. As long as your trading method can make a profit after transaction cost over and over again you will be well on your way to being a successful Forex day trader.

What is Forex Trading?

Forex is short for foreign exchange. Forex trading therefore is trading in the foreign exchange market. When you trade Forex you’re not trading a single currency, but you are trading a currency pair. A currency pair, as you may have already guessed, consist of two currencies. You may have seen the symbols for these currency pairs displayed in such ways as, EURUSD, EUR-USD, or EUR/USD. The symbol EURUSD is the symbol for the euro US dollar currency pair.

With a currency pair symbol EURUSD the first part, EUR is known as the base currency and the last part, USD is known as the counter currency. The price action of a currency pair indicates the relative strength of the base currency in relation to the counter currency. For instance if the price of the EURUSD is 1.5000 and the price goes up to 1.5100 then the euro has increased in relative value compared with the US dollar. If on the other hand the EURUSD is 1.5000 and the price goes to 1.49500 then the US dollar has increased in relative value as compared to the euro.

Now that we’ve covered a bit about currency pairs and their symbols let’s talk more about Forex trading. In general Forex trading is a speculative activity. In other words, traders look to profit by speculating whether a currency pair’s price will move up or down. A trader anticipating that the euro will increase in strength relative to the US dollar would buy the currency pair, EURUSD. On the other hand a trader anticipating that the euro will decrease in strength relative to the US dollar would be looking to sell short the EURUSD.

In general, trading can be considered to be much more short-term in nature than investing. Whereas an investor may hold a position for months and years a trader may hold a position for only a few minutes and even up to several days or weeks.

Forex scalping – Scalping is a short-term trading method designed to capture small profits, often just several pips. Scalpers often place numerous trades during a single Forex trading session.

Forex day trading – Day trading in the traditional sense is different than Forex day trading. In the traditional sense of day trading there are no overnight positions held. Since the Forex market trades essentially around-the-clock day trading Forex can take place any time within a 24-hour time period. For instance, day trading could take place from the close of the New York session on one day till the close of the New York session on the next day. It is important to note that a trade of this length which is essentially 24 hours would be considered a long time to stay in a single day trade.

In general, in Forex trading you’re looking to profit from choosing the correct direction of a currency pair. Although trading in general can be spoken of to be, “short term” your objective is a trader is to profit consistently for long-term success.

Forex Day Trading

There are many misconceptions in the world of trading regarding forex day trading.  College students may gather in awe around a student checking his trade between classes.  They cannot help but think that this has to be the greatest way in the world to make money!  The truth is that there is an extremely high learning curve associated with day trading.  With the time frames so small and volatility so high, fortunes can be won or lost very quickly.  Unfortunately, losses are far more prevalent.

Day trading foreign currency is done over short spans of time and at the end of the trading day all trades are closed out. The charts traded are 1 hour or less. Traders known as scalpers turn trades around in a matter of minutes or even seconds.  Eyes glued to the chart, they place a trade, and keep their mouse on the close button looking for the opportune time to exit.  They usually set a stop immediately in case the connection were to be lost. You can see that scalping can be highly stressful.  Some personalities love the way they can trade for a few hours, make good money, and get on with the rest of their lives.  Others cannot deal with the fast moving market.

Then there are those that trade the swings in the market over longer time periods during the day.  Many of these traders use audible signals to alert when certain levels are reached.  That way, they need not be tied to the computer all day. Swing traders close out all of their trades by day’s end as well.

If  forex day trading is going to work for you, there are to things to consider.  It takes time and education to be successful.  Day trading, also called intra-day trading, requires knowledge of the markets, economic indicators, and charts far beyond that necessary for longer term trading.  Not only must you educate yourself, but you must spend more time huddled over your computer looking at charts as you trade.

In day trading, price moves quickly, and you must react fast or suffer loss.  Rapid response to the market requires a solid footing in the ways of the currency marketplace.  You must have absorbed enough knowledge about trading so that it is second nature.  You cannot think for long when price is moving so rapidly.

Once you educate yourself and determine whether you can enjoy the quick reactions demanded with forex day trading, it can be a lucrative hobby or profession.  Actually, the forex market is known to be much easier to day trade than the stock market.  The more money you have to deposit in your account, the more money you can make.  If an account is funded with less than $25,000 or $30,000, an individual generally is considered a novice trader.  When you follow a good money management plan and risk no more than 2% on a trade, it is much easier to profit with a larger account.  But if you are starting with a few hundred dollars, forex day trading is your only option and it is a good one. It is absolutely possible to build up an account substantially and rapidly with forex.

What Is Forex Day Trading?

Forex day trading is the process of opening and closing your trades all within on trading day. Typically this period of time will depend on the session that the trader prefers to trade.

Forex day trading can place one or many trades during the trading day. Automated Forex trading software has become more and more popular and made it possible to trade completely hands free. This has led many more trader to use Forex day trading as their primary means of growing their equity.

With automated Forex trading software also called Forex robots, traders can literally place hundreds of trades per day. Traders of this type are only looking to make a few pips per trade and end up with a nice profit at the end of the day.

One of the things day traders will tell you they really like about their type of trading is that they hold no positions over night. Many feel that this reduces their risk by reducing their exposure to unexpected overnight events.

If there is one thing you must be mindful of when day trading it is youtransaction costs. It hardlu makes sense to make 2 pips per trade when your transactions costs are 2 pips per trade. That would mean that all you would do is breakeven.

Forex day trading is not for everyone, but if you are dedicated and have a Forex trading system that can make you money after all transaction costs are factored in then Forex day trading just might be for you.

Day Trading System – Which One Do I Choose?

Good question. With the sea of trading information available on the net it’s easy to get lost and confused. You will find that much of the day trading offerings that you see are nothing more than hype.

Why is that? Basically advertising for day trading systems is designed to appeal to your emotions. If the advertisement can get you to imagine that for this small monthly fee you will receive information which will help you retire to your own lush tropical island, then your emotions have been appealed to.

Take a good long look at the ad. Does it contain glowing testimonials? These are designed to give credibility to the company or person being advertised. The testimonials are designed so that you will look at them and say, “Wow, I sure could use a $5,000 profit”.

The testimonials will most likely display atypical profits designed to get you very excited about the product. This profit may be one that you and I are unlikely to achieve using the advertised methods.

Let me save you a ton of time, money, and grief as well as satisfy your curiosity. If there are no performance results then pass on signing up. Believe me if the overall results were extremely impressive the advertisers would certainly toot their own horn and display them in big bold letters and numbers.

You shouldn’t even be interested in a free trial. It’s the same thing as if someone asks you to go to an opportunity meeting without telling you what the opportunity meeting is about. If you follow the simple rule of passing on these hyped up kinds of advertisements you will find that there is a lot fewer appealing offerings than you originally thought.

Now there is another side to the coin. What if the day trading system you see advertised does have performance results listed? In that case you will need to know what to look for in those performance results. If all that is listed sounds resembles the following, “900% annual return” or “98%” winners then simply follow rule #1 – pass. A profit figure or the percentage of winners alone is not enough info for you to intelligently evaluate a day trading system.

Now that you are armed with some very basic screening information go out an take a look at what some vendors are offering. What percentage of them made the initial cut and will go on to the next round of your evaluation?

Evaluating potential day trading systems takes some time and effort and you may even get a little discouraged at first. What is worse though, feeling a little disappointed that there are far fewer decent offerings than you originally thought or losing money because you did not look before you leaped?