Forex day trading is suitable for those who are happy making profits with small price movements. This type of trader normally chooses a major currency pair as that market is generally more liquid which allows them to do several trades at a profit during a day. It can be a successful trading method, but it requires a particular strategy that you should implement to make it a success.
Entry Points for Forex Day Trading
To enter the day trading forex market, you should make a choice of volatile, liquid pairs. The liquidity that is generally offered by a major currency pair allows you entry into and exit from the market when the prices are suitable. The market volatility in those currency pairs will boost your profit level as the more movement there is in a currency pair, the larger the value in movements. Once you have made the decision regarding your currency pair, you should sit back and wait for the most opportune point of entry. You should check on the forex calendars and candlestick charts to ascertain your best entry point. The candlesticks will show you the movement volumes, patterns and technicals you need to decide on your point. If you have implemented a suitable trading strategy, this should indicate the most suitable entry point for you.
Your forex strategy and trading style will determine the price you will target. There are a few options available as far as this is concerned.
- Daily pivots are a suitable day strategy, but it depends upon the volatility of your currency pair. The pair is bought at a low during the day and sold as soon as the high you have set is reached. The price that you target here is normally as soon as there is a reversal after your purchase point.
- Scalping is a very short-term approach where you sell your pair shortly after opening the position. You would set your price target at the first sign of profitability for the pair.
- A momentum strategy is dependent upon fundamental analysis and the trend. You should ride out the trend until your price target starts to fall.
- With a fading strategy, you will close your position directly after a rapid upward move has been experienced. This strategy is based on the over-purchase of a pair. This will give the early buyers the change to show profits while the current buyers are considering par. This is a very risky strategy and the target price is when buyers are once again commencing purchase.
If you become a forex day trader, you have to include stop-losses in every trade you make. You will be affected by the sharp, quick movements in the prices. Traders who use a different strategy will not be subject to these swift price movements. Many day traders also include stop-loss points.
The first point you have to set is a physical stop at the price level that is in agreement with your risk tolerance level. The second point you set is normally a mental point. This should be at a point where you feel your criteria upon entry have been abused. An example is when the market takes a sudden turn against your trade; you should have the option to close that position immediately.