Let’s explore some of the best forex day trading strategies and some must-know day trading rules available.
Day trading is one of the most known trading styles; here are some of the things you need to know about day trading on forex and other markets and how you can get started.
What is Forex Day Trading?
Forex day trading involves buying and selling currencies within a single day (closing out trading positions at the end of each day and starting the following day afresh.
Day traders buy and sell multiple currency pairs within the same day, or even multiple times within the same day, to take advantage of small market movements.
Forex day trading Also known as intra-day trading, forex day trading is not for the part-timer as it takes time, focus, dedication, and a specific mindset.
It involves making quick decisions and executing a large number of trades for a relatively small profit each time.
Is Day Trading Profitable?
Most day traders lose money, reflecting the activity as a risk, but it can also be profitable. The factors determining the potential upside of forex day trading include starting capital amount, strategies used, the markets in which one is active, and luck.
Sometimes Investors succeed at predicting a stock’s movements and raking in 6-figure profits by accurately timing the market.
7 Day Trading Rules you Must Know
Below are some important day trading rules you should know before entering into day trading.
#1. Know the Lingo
It’s important to understand some key terminology when deciding to day trade. Here’s a quick primer:
- Leverage: Increasing the fund behind a given trade to maximize the potential returns
- Margin trading: lending money, usually from your broker, and using that fund to speculate on financial markets
- Entry point: The price at which you buy the stock or other instrument you are trading
- Exit point: The price at which you sell to exit the position
- Bid-ask system: The basic system for buying and selling stocks and other securities. Anyone interested in purchasing a stock enters a “bid” (the price they wish to pay), while anyone wanting to sell a stock enters an “ask,” or the price they wish to sell.
- Market order: An order for a stock trade that is to be executed at the prevailing market price
- Limit order: An order for a stock trade that will be executed only at the bid or ask price included in the order
#2. Always Use Limit Orders
Your trading strategy should be built around very specific stock trading information about the patterns that emerge in the way a certain stock trades, so it’s essential to have a precise sense of what price you wish to buy and sell.
Market orders can easily end up executing at diverse prices from where stocks are trading when you enter them. The best plan is to stick to limit orders that will execute on your terms only.
#3. You Need at Least $25,000
The Financial Industry Regulatory Authority requires that anyone who is engaged in forex day trading maintain at least $25,000 in their brokerage account, which is known as the “pattern day trading rule.”
If you purchase and sell a stock or other security within the same day 4 or more times in 5 business days, you will be considered a pattern day trader and must meet the requirements.
This rule reflects another vital reality: one needs a lot of funds to trade daily. Most trades will involve relatively slim margins (especially after fees), so you must put a lot of funds behind them to make a substantial profit.
That’s why beginners/newbies should use a stock trading simulator before putting actual money behind their efforts.
#4. Only Use Money you Can Afford to Lose
Because forex day trading is so risky and you stand a very high chance of losing money, ensure that any fund you set aside for forex day trading is money you can afford to lose. Never dip into money allocated for day-to-day living, important bills, or emergency funds.
#5. Expect to Do Margin Trading
Because forex day traders realize a very small gain/profit (if any) for each share they trade, they require leverage to buy up more shares (usually in the form of margin trading).
By lending from your broker, you can multiply your trade size. Just have it in mind that under the Federal Reserve Board’s Regulation, firms can only borrow a customer up to 50% of the total buy price of margin security for new purchases.
Margin trading comes with certain considerable risks. Borrowing the maximum can mean substantial profits when you succeed but also substantial losses when you don’t succeed.
This can quickly push you deep into debt with your broker. You will also pay interest on any fund you borrow.
#5.0. or Options Trading
Another way to get leverage is through options. These contracts let one buy or sell a stock and other security or commodity at a specific/ certain price in the future.
Because the price of the contract is lower than the price of a stock, you can purchase contracts that represent many more shares than you could otherwise afford.
Stock options trading comes with its risks too. Options contracts that don’t get “in the money” are worthless, so a failed trade often involves losing all you put behind it.
But successful trade usually magnifies your potential returns. And unlike margin trading, one isn’t in danger of losing borrowed money.
Regardless, options can be complex and should be extensively researched before taking the plunge.
#6. Build a Strategy
One of the biggest mistakes novice traders make is trying to “read” the market to capitalize on sudden swings in stock prices. Most veteran traders prefer to develop a clear, executable strategy ahead of time and then carefully follow it.
Before you trade, ensure you have a clear sense of your planned entry point, exit point, and stops.
Better still, if your online trading software has the option to automate your trades, you can be sure your emotions won’t drive you to make mistakes.
#7. And Also, Limit the Number of Stocks
As a newbie, focus on one to two stocks during a day trading session. This will simplify the finding and tracking opportunities and make it easier to know when to exit at the right time.
Top Best Forex Day Trading Strategies
Below is the list of the best forex day trading strategies:
- Momentum Trading.
- Scalping Strategy.
- Pullback Trading Strategy.
- Breakout Trading.
- News Trading.
How to Increase your Trading Knowledge
Always Have a Trading Plan
This is one of the best forex day trading strategies to improve your trading knowledge; It is simple to test a trading concept using today’s technologies before risking real cash.
Backtesting is a technique that enables you to test your trade concept against historical data to see if it is viable.
After a strategy has been created and backtested with positive results, it may be employed in live trading.
Record Your Every Trade
Every trade one should be monitored and also reviewed. Take screenshots of your trades, including the entry, stop loss levels, targets, and technical/fundamental annotations, so you can trace and evaluate them later.
A screenshot in a trading journal is worth a thousand words since it illustrates and shows exactly what you performed in those market conditions.
A thorough examination of your trades will show what your typical errors are (which you may attempt to rectify (practice) and what you are particularly good at, which you might profit from more.
Use Some Help
Your workflow is sure to make errors. What’s more aggravating is that anyone with a closer look could have noticed these mistakes and errors.
This is certainly true in the case of professional traders. Minor errors and mistakes can be caused by stress, emotions, lack of patience, or inattention.
Asking someone around to look through your approach is the greatest and also the best forex day trading strategy to prevent these scenarios.
You never know what important and great details you could have overlooked.
Leverage Technology to Your Advantage
Due to charting platforms, traders can see and analyze the markets in several ways. Backtesting a concept using historical data enables you to avoid costly mistakes.
We can keep track of trades from anywhere around the world by getting market updates on our devices.
Trading performance may be improved by using technology that we take for granted, such as a high-speed internet connection.
Trading may be exciting and lucrative if you use technology to your advantage and stay updated on new items.
Even if you have had several years of experience, there is always the opportunity for improvement. You may lose perspective if the real action involves you too much in the middle.
Spending time on a demo account on a platform is also the best forex day trading strategy; on the other hand, it will enable you to try out new approaches without the fear of failing.
These tactics will come to you during your next investment move if they prove worthwhile.
Kindly drop your view in the comment section on the forex day trading strategies discussed in this article.
Watch the video below to know the best forex day trading strategies to adopt: