Get Started with Forex Day Trading: An Essential Beginner's Guide

Have you ever thought about why a huge number of all forex trades are closed during one day? Because of a high level of volatility, the price of currencies changes every day. Thus, a lot of traders choose to open and close positions within one day. Therefore, it’s very difficult to predict the price movement in the long-term perspective. In this article, you will get to know what day trading means, how to trade properly on a daily basis, what forex day trading rules are, and how to get started with Forex trading.

What Is the Forex Market?

Forex Market is a global marketplace for exchanging foreign currencies for commercial, trading, or touristic purposes. This is the largest market worldwide due to the huge circulation of trade, commerce, and finance.

One of the most interesting things about Forex is that there is no central marketplace. Transactions are processed via computer networks among traders worldwide. Everybody can trade on the market 24 hours a day, five days a week. Currencies are traded all over the world in financial centers, including London, Sydney, Tokyo, Hong Kong, Frankfurt, New York, Singapore, Paris, etc.

A Brief History of Forex

Foreign exchange holdings rose by 10.8% from 1899 to 1913, while gold holdings rose by only 6.3%. This emphasized the importance of the Forex appearance.

The famous Bretton Woods System was created in 1944. It has the dollar as the world’s reserve currency since the US held ⅔ of gold reserves.

When it comes to the modern Forex market, it was born in 1973, when the foreign exchange stopped being controlled by the state. The collapse of the state control above the foreign exchange caused the building of conditions for the free market and complete floating.

Why We Can Trade Currencies

Before the invention of the Internet, individual investors didn’t have access to currency selling and buying. A list of currency traders included hedge funds, multinational corporations, and high-net-worth individuals. The main reason for this was that Forex trading required a lot of capital. After the Internet appeared, individual traders started interacting with each other easily via banks or brokerage platforms while building a secondary market. Many online brokers or dealers provide their customers with very high leverage, which allows trading in high volumes with a small account balance.

An Overview of Forex Markets

Forex is the most actively traded market all over the world. On the market, around $5 trillion is traded every day. This is more than worldwide equities by 25 times.

Forex is an over-the-counter market enabling its participants to trade at online platforms and via telephone. Currently, an amount of futures and options reaches 3 percent of the foreign exchange.

The foreign exchange market includes currencies from every country. However, only seven major currencies are USD, EUR, JPY, GBP, CAD, CHF, and AUD. Thus, the Forex market contains seven major currency pairs, including USD/CHF, EUR/USD, USD/JPY, GBP/USD, AUD/USD, NZD/USD, and USD/CAD. All the currency pairs contain USD as a basic or quoted currency. The main reason for the involvement of the USD in the currency pairs is that USD is the reserve currency worldwide. It can boast of the world’s biggest economy with a stable political system. As compared to other currencies, it has the highest amount of strength. Besides these major currencies pairs, there are other currency pairs traded on the Forex exchange. A list of these currency pairs includes minor and exotic pairs.

Minor currency pairs consist of a couple of major currencies except for the USD. Some of these pairs represent pairs of countries with active trade relationships.

When it comes to exotic currency pairs, they contain a major and exotic currency. Exotic currencies don’t belong to major or minor currencies, for instance, HKD (Hong Kong dollar) or NOK (Norwegian Krone). Some of them have a low level of liquidity, and some have a high level of liquidity. Traders focus on selling and buying 18 exotic currencies, while there are around 150 countries with developing economies.

What a Spot Market is

A spot market is a market where financial instruments, currencies, including commodities, and securities are exchanged for immediate delivery. This means that cash is exchanged for financial instruments.

A spot market is also named a “liquid market” or “cash market.” This can be explained by the fact that cash is immediately exchanged for the commodity. While transactions between a seller and buyer can be processed slowly, all the participants of the spot market trade right now without prolongations.

How the Spot Market Works

When it comes to the spot market’s work, a price of non-spot deals is specified at the moment, but a transaction is processed later. Expiring deals refer also to spot trades because participants of the expiring deal can immediately swap cash.

A spot price is the current price of the financial instrument. At this price, a financial instrument can be traded at the moment. By making a buy and sell order, traders create a spot price. While an order is filled and a new order is opened, the spot price may shift by the second.

What Forwards and Futures Markets are

Futures and forwards are contracts applied by businesses and investors to hedge against risks. They belong to the derivative assets. Both types of contracts depend on the settlement of the price of the asset. However, they differ from each other. Underlying assets include financial assets, commodities, and others. Financial assets include market indices, interest rates, currencies, bonds, stocks, and much more. Commodities include gold, silver, oil, coffee beans, etc.

What is Forex Day Trading?

Day trading on the Forex Market is an approach by using shorter-term charts. This type of trader manages positions during a short period from minutes to hours by using technical tools. This type is the best way to trade on volatile markets because it focuses on the short-term charts.

Forex day trading time frames are shorter than time frames used by the position traders while opening their trades for a couple of months to even a year. Compared to the scalping approach, day trading time frames are longer since scalpers exit their positions within several minutes.

Forex Day Trading for Beginners: How to Get Started

If you have decided to get started with Forex day trading, you need to understand that this is a challenge requiring a high level of preparation. Therefore, the first thing you need to do is read Forex day trading books, learn guidelines, watch tutorials online to learn more about the particularities of day trading, and get new skills.

To get a profit while buying and selling on a daily basis, you need to combine the tools of technical and fundamental analysis. In addition, traders need to obtain sufficient capital. A large amount on balance can bring great yields while compensating the time spent by the trader.

One of the most important conditions for day traders is access to the charts during the period that they want to spend on trading per day. If a trader loses access to a computer or mobile phone, they miss a lot of essential information that can be used during the trading process.

One of the most important challenges for day traders is specifying risks and protecting their funds from risks using an effective risk management strategy. To protect their assets from available risks, traders need to trade not more than a fixed percentage of their capital a day. In addition, they need to start dealing with small amounts and use well-thought-out stops and limits.

Day Trading Forex Strategies for Beginners

We want to offer you basic trading Forex strategies. You can use one of these trading strategies or combine them and create your own style to get more profit. In addition, you need to determine what your main goals are and use strategies according to your goals. Here we go!

The most popular day trading techniques are:

Following the trend

This technique lies in purchasing assets while a price is rising and selling while a price is dropping. In this case, traders expect that the price movement will be the same.

Scalping

Scalping strategy enjoys huge popularity among forex traders. It involves placing multiple orders throughout the day in order to profit from minute price changes. It works great for volatile instruments. A single trade does not promise high profit and is closed after gaining about 5-20 points. But a large number of successful trades like this may bring some impressive results.

Contrarian investing

Traders use this strategy to buy while a price is falling and purchase while a price starts to drop. They expect that a trend will change in the future.

Trading the news

Participants of the market who use this trading technique purchase while great news is announced or sell while bad news is announced.

Fading

Same as the trend trading, the fade (or fading) strategy implies speculation on trends. Traders who adopt the fading strategy go against the prevailing trend and benefit from trend reversal. A trader will sell an instrument when its price goes up and buy when it goes down right before the trend changes direction. This is considered to be a high-risk approach used primarily in times of major economic events. It requires a quick reaction and, if implemented correctly, promises impressive gains.

Range Trading

People who “trade in a range” know how price typically acts throughout a day and use it to their advantage. If not talking about any economic events, the price action tends to repeat itself. Knowing an instrument’s highs and lows (support and resilience levels) allows you to predict when the price will change direction and accordingly when you want to enter or exit a trade.

Momentum

The idea of the momentum strategy is that a trader finds a currency pair that already shows a particular trend and is expected to continue moving in the same direction for a while. For example, buying USD/CAD when the oil prices (and the Canadian currency) experience a decline.

Daily Pivot

The daily pivot trading strategy implies buying at the lowest price of the day and selling at the day’s highest price. To determine those, traders use the pivot point calculation.

A pivot point is a great tool widely used in the forex market to predict short-term trends and reversals. Although there are a few methods for calculating pivot points, the most popular one is known as a 5-point system. It involves the previous day’s highs and lows and close as well as two support levels and two resistance levels.

Pivot points are essential for intraday traders when it comes to understanding market trends and choosing entry and exit points. Those in their turn are helpful in identifying the right stop-loss levels and profit targets. Besides, they show whether the market is bullish or bearish. If the trading takes place above the pivot point, it indicates the ongoing bullish sentiment. Conversely, price action below the pivot point is a sign of bearish sentiment.

Forex Day Trading System

Forex day trading systems are tools that help currency day traders figure out the best timing to buy or sell currency pairs. They include graphical interfaces with technical charts. These systems are optimized for common intraday strategies described above and broadly divided into two types: manual systems and automated ones. A manual system requires much of a trader’s involvement (chart monitoring and reaction to signals). An automated system reacts to signals according to settings chosen by a trader in advance.

Choosing the Best Indicators For Forex Day Trading

Experienced and inexperienced traders alike rely on indicators to develop strategies and plan separate steps in their trading operations. Indicators prompt where the prices will move next and show the history of price changes, thus providing a bigger picture. Carefully chosen and accurately interpreted indicators will help a trader avoid unnecessary losses and maximize profits, that’s why it’s unwise to ignore technical analysis and indicators that can assist in day trading. Let us review the best indicators for day trading, what they mean, and how to use them with the maximum benefit.

Moving Averages

Moving average (MA) is just what its name says: an average value of forex asset prices calculated for a specified time period. When used in forex day trades, MA predicts whether the price will go up or down in the nearest future, according to a general trend. MA can be plotted as one or two lines, the latter being more useful for price predictions.

If a trader plots a one-line MA indicator, the analysis is simple: if price candles are steadily above the plotted line, it is an uptrend, and it’s time to buy. If price candles mostly stay under the plotted MA line, it’s a downtrend, and a trader should act correspondingly. Yet this analysis is a bit overly simplified and can lead to fake signals, so to say, price spikes that are caused by the news and do not stand for a long-term trend.

To avoid such miscalculations, it’s recommended to use two-line MA. One line is calculated as a “faster” average and another one stands for “slower” trends. Say, one MA is calculated over 10 days and the other one spans over 20 days. So, if the “faster” trend stays steadily over the “slower” one, the upward trend is reliable. If the “faster” trend runs below the “slower” one, the downward trend is gaining traction.

Relative Strength Index (RSI)

This index help evaluate the rate of price movement fluctuation that happens over a certain period. In other words, it reflects the momentum of price development. Typically, RSI is determined for 14 days or more, but for day trading it is acceptable to apply it for shorter periods.

The key measuring unit of RSI is the scale between 0 and 100. RSI signals about overbought and oversold positions in the following way: when this measurement goes above 70, RSI is overbought, and when the measurement falls below 30, it is oversold. Trends are calculated between readings of 80 and 20: 80 stands for very overbought, and 20 for oversold.

How to use this index? Watch if the momentum is positive or negative and act correspondingly: buy when negative momentum slows down and sell when positive momentum loses speed. So when the trend reverts soon afterward, a trader will see the open position bring palpable profits.

On-Balance Volume (OBV)

This indicator relies on changes in traded volumes of forex assets to predict price momentum. It’s like a concept of supply and demand impacting pricing, and it operates on the same premise. OBV scouts for the crowd sentiment and actions to prompt future price changes. To put it simply, when forex assets are bought in bulks by institutional investors during a relatively short time frame, the volume grows even without impacting the price at first. But then quantity turns into quality and the prices go up following the volume (or crashes on the spot). At this point, institutional investors start selling, and individual investors get to buy it back at a higher price.

The best way to use this indicator is to look at the price action line constrained by two price bars. When the price is booming, the volume value is up to volume, and when the price plummets, it’s the down volume. It’s not the numerical value that matters; it’s the steepness and direction of the slope that prompt what will happen next.

Aroon Indicator

This indicator helps find out trends and use them smartly. Namely, it shows if a forex pair is in a trend and where it is heading. From this indicator, it’s possible to learn if the price hits new highs or lows during a selected period.

The indicator consists of two lines, called Aroon high and Aroon low. These lines look like two zigzags that regularly intersect. The intersection points (crossovers) signal the reversal of the trend. When the Aroon high is above the Aroon low, the trend is bullish, and when Aroon low is above the Aroon high, the trend is bearish. Correspondingly, when the Aroon high moves down and crosses the Aroon low, it signals that the trend will change from bullish to bearish, and vice versa. The key takeaway for a trader is that during a downwards trend, the price will reach new low values, and during an upward trend, the price will hit new highs.

Stochastic Oscillator

This indicator predicts the major reversals of forex pair price based on analysis of previous price behavior. The indicator relies on the acceleration in price movement to predict the next price moves, since this acceleration often changes before the actual price reversal happens. Hence, by detecting this point of slowing down, a trader can predict a future reverse of price trend, whether up or down.

Stochastic oscillator is about the comparison. The closing price is compared to the low-high level of price recorded over a certain period, usually 14 time units. Any movements of the closing price above or below the high-low average are hints about future price movements. The indicator itself is a double line that fluctuates between values of 0 and 100. By comparing upper and lower ranges of price movement, traders make the decisions about trades. The general rule says that if the price closes near the high average, the market heads upward. And to the contrary, if the closing price falls in the low, the market heads down.

For example, more specific prompts are as follows: the price heading into the value above 80 means that the asset is trading at the top of the range, and it is overbought. If the instrument price falls below 20, it means that the asset reaches its low and is oversold.

Essential Rules for Successful Forex Day Trading

There exists a whole array of more or less specific rules for day trading that tackle different aspects of trades. However, some rules are more useful in day trading than others, and following them can protect a trader against many worries and unnecessary losses.

1. Maintain reasonable expectations towards trades

For beginners and more advanced traders alike, it’s a common mistake to expect ‘becoming rich fast’, which is a myth. Trading, and day trading, in particular, is a steady-paced job, and here apply the expectations usually set against, say, fund managers. The yield of 20-40% ROI per annum is considered a good result, so a trader needs to aim for the same steady progress. When the capital increases, it will bring more and more returns per every trade, but it does not happen overnight. Day trading is indeed different from going into long positions, but it also takes many days to build a solid financial foundation. Keeping this idea in mind will help avoid risky operations and keep the head cool.

2. Explore one’s personality

Knowing one’s strong and weak sides as a person helps in picking the right strategy or even trading mode and sticking to it. While evaluating one’s mindset, it’s necessary, to be honest.

To be a successful day trader, one has to be a persevering person ready to sit in front of the computer all day long. Adrenalin rushes, fast decisions, and attention to minute details – these are the traits required for a day trading. If a trader prefers to open a position and walk away from the PC, day trading is not the best option.

In addition, a day trader is a person who can close the position when the day ends and walk away from the workplace quietly without regrets about potential overnight profits.

3. Follow a strategy

If a trader is ready to engage in day trading, a clear strategy with set goals and defined steps is a must. A strategy depends on a trader’s plans and preferences, but it should be mapped in advance. It sets the basic moves, the limits, unacceptable steps, and the short-term and long-term goals. Ultimately, it’s a trade rehearsal, so once money is brought into action, everything happens according to the predetermined plan. Definitely, markets do not play out according to these plans, but having the goal in view helps to avoid panicky moves and reckless decisions one will deeply regret later.

4. Be careful while trading based on the news

The power of FOMO has set astray many carefully designed strategies and plans. Refraining from it and evaluating the news and the market before opening a position is probably the rule everyone should have as a phone reminder or a poster over the working station. It’s very tempting to jump on the bandwagon while it accelerates, yet its trajectory is still unclear. Opening a position before the news announcement ignores the fact that the trend may go oppositely because of some minute details of the news or even the wrong timing. Opening a position after the news is published also required some delay, for volatility to settle and a steady trend to build up.

5. Risk only 1% of the funds stored in the trading account

Although it seems an obvious move to pour all your money in the forex account into trading, it’s totally against the trading logic. Forex trade is a potentially profitable but risky occupation, and money losses can be very painful.

So first, use the money for trading that you can afford to lose without catastrophic consequences. It’s a very big mistake to invest money that was accumulated for other purposes, like rent, education, or medical needs, since there are no guarantees that this sum will increase or even remain intact after the day trading.

Second, risk only 1% or 2% of your capital. Losing more is a sign of an unprofessional and even gambling-like approach. So the first step is to have enough money, which makes 1% a decent sum (1% of $500 is not a path to riches or even serious trades). Second, calculate potential losses in pips and their related money value and make sure that it does not exceed 1% - 2% of your total capital.

6. Pick a reliable broker with a solid and user-friendly trading platform

To be able to use day trading indicators and be sure that stop-loss order will be executed with precision, a trader needs to find a reliable platform with fine-tuned hardware and software that won’t let down at the most important moment. Spread size, support, user interface, leverage, and clarity of indicator charts are all important when choosing a broker. In day trading, a trader needs to make speedy decisions related to opening and closing positions and not to the search of a necessary button or figuring out what the chart is supposed to mean. When the broker is chosen, the rest is a matter of planning and practice.

Brief Review Of 5 Best Forex Trading Platforms

Since we started discussing good forex trading platforms, it is reasonable to move on to the list of trusted options that any trader can use safely.

1. justmarkets.com

   It is the overall best trading platform that offers a powerfol toolkit of instruments and modest spreads. The platform provides access to a wide variety of currencies, equips a trader with an elaborate system of indicators, and ensures smooth and safe operations without any technical delays or hindrances. A relatively new player in the field, justmarkets.com has already earned a solid reputation of traders around the world and attracts thousands of new traders who seek a simple but capacious tool for making forex profits.

2. IG

   This platform can be particolarly recommended to traders from the USA, but people from the rest of the world can also use it to their advantage. Its signature is a developed system of learning support for new traders and competitive pricing. The platform has designed a mobile app for OS and Android to enable easy trading from any place a trader finds appropriate. IG provides both basic and advanced trading and analytical tools and an option of customization to frame the selected toolkit in a way most convenient to a trader.

3. CMC Markets

   It is probably the oldest platform that offered online forex trading. The best thing we want to point out about the platform is that it has a special tool of price projection (it belongs to the pattern recognition toolkit) and a tool of price sentiment. They all can be freely applied on PC or in the app, which makes their use even more flexible. Along with this proprietary feature, CMC offers around 300 currencies to choose from and more than 100 indicators and plotting tools for marking trends.

4. Saxo Bank

   This platform offers such an amazing array of advanced trading tools that it may seem overwhelming. However, it also supplies the learning tools and prompts that help beginners find their way around. This initial difficolty is leveled out by the huge number of assets, tools, and currencies to trade. The platform offers flexible pricing, switching between basic and advanced trading modes, and protection of the European supervising authority.

5. XTB

   It is one of the biggest platforms that support foreign trading and provide demo accounts for the practice. Even this fact makes it a desired destination for beginners, but the list of advantages does not stop here. The platform offers plenty of simple and advanced trading tools and more than 40 currency pairs to choose from. Very moderate spreads, no minimum deposit required and excellent customer support make it a welcoming place to start. XTB can be accessed through MT4 and xStation 5, but the latter does not have the option of creating customized indicators, which is a big disadvantage.

The Main Question About Forex Day Trading: Profitable Or Not?

The honest answer is “it depends.” Some traders lose all and some reach significant success, while many just get by, losing here and earning there and calling it a draw.

If you want to belong to the cohort of people who can earn a living by day trading, you need to account for several factors. First, you need a decent starting capital because otherwise, earnings will be insignificant at first, discouraging you from pursuing the goal. Second, you need to develop a consistent strategy and follow it. Aimless speculation will soon make your account empty. Then, you need to educate yourself about the currency pair you are going to trade and what prospects it has. You also need to be restrained in leverage matters. Finally, you must catch a bit of luck.

If all mentioned factors work to your benefit, you’ll be able to earn money annually comparable to a decent salary (but without a boss or managers hovering over you). But if you plan to get rich fast, you’ll have to venture into other markets or look for another source of income.

Forex and Stocks Day Trading in Comparison

Yes, it is possible to day trade stocks as well as forex, and each instrument has its pros and cons for day trading strategy.

Forex day trading has a few strong arguments in its favor: high volume, liquidity, lower entrance threshold, and unlimited trading hours. Forex markets operate round the clock, their volume is $6 trillion and liquidity for popular pairs is always booming.

One can start trading with a couple of hundred dollars and still make profits.

However, volatility in the forex market is also very high, and what seemed to be a smart step a few moments before may lead to a failure couple of hours later.

Stock day trading, on the other hand, offers a diversity of stocks to choose from and an option to hold some stocks for the future. If you believe in some new technology, you can buy stocks while cheap and support the project, thus helping it grow and letting stock prices increase with time. These stocks can become a basis for a portfolio while you master day trading with stocks that demonstrate the rapid growth at the moment.

However, stocks are the instrument that may not be very easy to liquidate when necessary, since less popular and cheaper stocks may witness practically non-existent demand. To start day trading in stocks and reach any visible financial goals, it’s necessary to rely on approximately $25,000 initial capital, which is a goal not accessible to every beginner. Finally, stock markets operate on a specific schedule, and you cannot trade outside this schedule.

If we compare what is more profitable and easier for day trading, the answers will be ambiguous. Some prefer exploring currency pair trends and underlying reasons for price change; others prefer exploring the financial statements and business models of companies that issue the stocks. Hence, the first will find forex day trading easier, while the second will vote for stocks. The trading principles are the same, so it all is a matter of taste. Profits also depend on the skills, emotional stability, and analytical activities of traders, so it does not depend on instruments; first and foremost it depends on a trader.

Forex Day Trading Tips

• Frequent trading implies frequent entry costs. This is why narrow spreads are particularly important when adopting this approach. You might do everything just right, but if the difference between the bid and ask prices is too big, the profit will vanish each time you close an order.
• Trade highly volatile pairs. It is the fast market moves that make this trading style so profitable. Although low volatility sounds safer, it might make you wait for hours before the price will reach the desired level. The most volatile thus the best day trading currency pairs are considered to be EUR/USD, GBP/USD, and EUR/JPY.
• Currency day trading is a time-consuming approach, and many traders forget about it. This approach requires a lot of time and discipline . If you want to make any significant profit from intraday trades, consider forex your full-time job.
• Keep an eye on major economic events. The success of each of the above-mentioned strategies is based on fundamental analysis. Following up on macroeconomic news is essential for intraday traders.
• Technical analysis must be a foundation for any conscious trading decision. Technical indicators will help identify market direction as well as the best entry and exit points. Subscribe to our daily newsletters that will help you pick up on market signals.
• Don’t forget about risk management. This is something novice traders tend to ignore; hence they often lose money. Decide on an acceptable risk-reward ratio first and apply day trading strategies that work for you.

How to Learn Day Trading

It is wise to start exploring forex by opening a demo account and trading virtual money first. If you are a new trader, a teaching account is what you need. It uses the same platform as the real account, shows the real-time streaming quotes, and prevents you from losing. A demo account does not imply gaining any profit, but it is a great tool for testing your strategy.

For those confident in their skills, JustMarkets offers day traders attractive conditions, including narrow spreads and 0% withdrawal commission. Open a trading account and make a profit today.

Conclusion

In conclusion, day trading is buying and selling assets in short time frames. This type is a great way to trade on the Forex market because of the high level of its volatility. The most effective day trading methods list includes following the trend, scalping, contrarian investing, and trading the news strategies. You can choose one of these strategies or mix them to create your own unique trading style.

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