What is day trading in forex

In the adrenaline world of forex day trading, anything can happen in a blink of an eye.

Forex day trading can be a very profitable business (as long as you do it the right way). However, it can be difficult for beginners, especially those who aren't fully prepared with a well-planned strategy.

Even the most experienced day traders will run into trouble and lose money.

So, what exactly is day trading and how does it work? Let’s try to find out!

Digging deeper into forex day trading

Day trading is a popular form of trading in which you buy and sell a currency pair or other assets over the course of a single trading day in order to benefit from small price movements.

Day trading is another form of short-term trading, but unlike scalping, you usually only take one trade a day and close it out at the end of the day.

Day traders prefer picking aside at the start of the day, working on their trading strategy, and then finishing the day with a profit or a loss.

Day trading is right for forex traders that have sufficient time throughout the day to analyze, execute and monitor a trade.

If you think scalping is too fast but swing trading is a bit slow for your taste, then day trading might suit you.

Forex day trading

Apart from scalping, day traders use various other strategies;

1. Trend Trading

Trend trading is the process of determining an overall trend by looking at a longer time frame chart.

If the overall trend has been identified, you can switch to a lower time frame chart and search for trading opportunities in the direction of that trend.

2. Countertrend Trading

Countertrend day trading is close to trend trading in that you search for trades in the opposite direction after determining the overall trend.

The aim here is to identify the end of a trend and enter the market before it reverses. This is a little riskier, but the gains can be enormous.

3. Range Trading

Range trading, also known as channel trading, is a day trading approach that begins with an understanding of recent market action.

A trader will examine chart trends to identify standard highs and lows throughout the day, as well as the difference between these points.

For example, if the price has been rising or falling off a support or resistance level, a trader can decide to buy or sell based on their perception of the market's direction.

4. Breakout trading

Breakout trading is when you check the pair's range during certain hours of the day and then place trades on either side, aiming for a breakout in either direction.

This is especially useful when a pair has been trading in a narrow range because it typically indicates that the pair is about to make a major move.

The task here is to position yourself so that when the move occurs, you are ready to catch the wave!

5. News trading

News trading is one of the most conventional, mostly short-term trading strategies employed by day traders.

Someone who trades the news is less concerned with charts and technical research. They are waiting for knowledge that they think will push prices in one direction or the other.

This info is obtained through economic data such as unemployment, interest rates, or inflation, or it could simply be breaking news. 

Ok, now that you know different types of strategies day traders use, it’s time to become a day trader.

What we mean is how you can become a forex day trader.

How to become a forex day trader?

Professional day traders who trade for a living rather than for fun, are well-established. They usually have a thorough understanding of the industry as well. Here are some of the requirements for being a good forex day trader.

Learn, learn, and learn

Individuals who try to day trade without an understanding of market dynamics often lose. A day trader should be able to do technical analysis and interpret charts. Charts, however, can be deceiving if you don't have a thorough understanding of the business you're in and the assets available in it. Perform your due diligence to learn the ins and outs of the pairs you trade.

Risk Management

Every professional forex day trader manages risk; it is one of, if not the most, important components of long-term profitability.

To begin, keep your risk on each trade as low as possible, ideally 1% or less. This means that if your account is $3,000, you can not lose more than $30 on a single trade. That may seem insignificant, but losses increase, and even a successful day-trading strategy may experience a string of losses.

Plan of action

A trader must have a strategic advantage over the rest of the market. As previously mentioned, day traders employ a range of methodologies. These techniques are fine-tuned until they consistently generate profits while effectively limiting losses.

Discipline

A profitable strategy is worthless if it is not accompanied by discipline. Many day traders lose a lot of money because they do not execute trades that meet their own expectations. "Plan the trade and trade the plan," as the saying goes. Without discipline, success is unlikely.

Day traders depend heavily on market volatility to benefit. A pair that moves a lot during the day can be appealing to a day trader. This may be due to a variety of factors such as an earnings release, market sentiment, or even general economic news.

Day trading example

Assume a trader has $5,000 in capital and a win rate of 55% on his trades. They only put up 1% of their money, or $50, per trade. A stop-loss order is used to achieve this. A stop-loss order is placed 5 pips away from the trade entry price, and profit-target is placed 8 pips away.

This means that the possible profit is 1.6 times greater than the risk for each trade (8 pips divided by 5 pips).

Remember, you want winners to outnumber losers.

Using the above conditions, it is normally possible to make around five round turn trades (round turn involves entry and exit) when trading a forex pair for two hours during an active time of day. If there are 20 trading days in a month, the trader can make 100 trades on average.

Day trading

Should you start forex day trading?

As a profession, forex day trading can be extremely difficult and demanding. To begin, you should be familiar with the trading environment and have a clear understanding of your risk tolerance, money, and goals.

Day trading is also a time-consuming profession. You'll need to put in a lot of effort if you want to refine your plans and make money (after you've trained, of course). This isn't something you can do on the side or whenever you feel like it. You must be fully committed to it.

If you decide that day trading is for you, remember to start small. Rather than diving headfirst into the market and wearing yourself out, concentrate on a few pairs, especially forex majors. Going all in would just complicate your trading strategy and could result in large losses.

Finally, try to keep your cool and keep emotion out of your trades. The more you can do this, the easier it will be to stick to your strategy. Keeping a level head helps you to retain your concentration while staying on the course you've chosen.

How a typical day goes for a day trader?

We decide to flare up things. So, if you are pondering about how a typical day goes for a forex day trader, then here’s the answer.

Day trading isn't always exciting; in fact, some days are very dull. However, most day traders will say that they enjoy what they do. If you're familiar with your methods, nothing can surprise you or get your heart pumping if the result of each trade is uncertain when you take it. That adds to the fun, but it should never be considered gambling.

The majority of day traders work two to five hours a day. Five hours is a long time. And if you add a few minutes per day for planning and analysis at the end of the day and week, day trading isn't that time-consuming. You'll have plenty of time to pursue other interests.

However, this is the end product of a lot of work. It is common for it to take five months or more of regular effort every day and on weekends before you can open a live account and expect to make a consistent income from trading for a couple of hours a day.

Bottom line

Day trading requires a high level of emotional discipline, stress tolerance, and concentration. Maintain attention when trading, but also evaluate each week.

Taking screenshots of each trading day offers a historical record of any trade you made, and since it reveals the circumstances of the trade, this method outperforms a written trading journal.

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