Forex Day Trades – October 07

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Forex Day Trades – October 07

Here we’ll look at two day trades in the EUR/USD. The strategy used is a trend following strategy which I have been trading and testing on a 1 and 5 minute chart. For most traders I would recommend using it on a 5 minute chart since the targets are a bit bigger, risk is still kept small, and the trends are easier to spot.

Depending on which chart time frame you are watching will determine what trend you are interested in. For example, if you are trading a 1 minute chart, your main focus will be trends and trend changes on the 1 minute chart. Although being aware of the dominant trend for the day–as seen on a 5 minute chart–is also crucial.

In the EUR/USD the initial trend was up following the open, the trend then transitioned to the downside. Since I don’t start watching the EUR/USD till several hours after the open, the trend was down by that time.

The downtrend is determined by the price making a lower swing-highs and lower swing-lows; I have shown this with a downward sloping black trendline. The trendline is not important, it is just a visual to remind me that the trend is down. The lower-lows and lower-highs is what I am truly interested in.

Here’s one trade in the EUR/USD on a 5 minute chart, then we’ll go through a brief introduction to the strategy.

First off, the yellow area is the London session, and the cream colored section is the overlap period for the European and US session. The trade occurs during the overlap period (a signal also occurred prior to this, and shortly after).

The “flowing” lines on the charts are “envelopes”. On this chart they are set to 0.015%. These envelopes may need to be adjusted slightly each day based on volatility. In a downtrend we want the upper envelope to touch most of the high points in the downtrend-as this is what we will use an entry point (it’s ok if the price runs a few pips past).

The maximum stop on these trades should be about 6 pips, and in a downtrend (as shown above) we enter short at the upper band. I have drawn an arrow where this occurred, and marked the entry price (upper band) at 1.35733. The stop is initially placed for 6 pips immediately upon entry, but as soon as the price begins to drop again the stop is moved to the most recent high.

Since the price barely made it above the upper band on this trade, the risk was less than a pip since the stop was brought down to the recent high (at the arrow) once the price started to drop.

A Fibonacci extension tool is used to establish the profit target. Using the last wave down as the reference points for our Fibonacci extension we attain a target of 1.35632. This happens to be the 61.8% level in this case, but sometimes it may be the 100% level. We want to get out near the prior low, so whichever level happens to be closest to the low is the one we will use. This trade produced 10.1 pips.

It can be a very “active” strategy, resulting in lots of trades and lots of small profits…or lots of losses. It is also fairly subjective; since so many signals occur, it is important to trade with a trend, or be aware of the dominant trend when trading against it on a smaller time frame.

Another trade highlights this point. Just seconds before the prior short trade, the price had been moving higher on the 1 minute chart. This was against the dominant trend on the 5 minute chart, but there was still some opportunity there.

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A long trade is taken at the lower band (long trades at lower band, short trades at upper band) with an initial stop at 3.5 pips (6 pips on 5 minute chart). Envelopes on the 1 minute are set at 0.01%, but once again may need to be adjusted slightly depending on market conditions.

Once the price moves higher the stop is immediately brought up to the last low, giving about 2 pips of risk on the trade. Once again we get out at a Fibonacci extension level, which in this case is the 100% level, for a profit of 4.1 pips. This is scalping-trade and therefore may be off limits to some traders, due to the spread or their broker not allowing scalping.

Following this trade, the next trade was to immediately take a short trade based on the overall downtrend. Trading against the trend is generally not recommended, but the trend is always relative to the time frame you are watching. If trading small time frames, always be aware of the dominant trend, since the downtrend continued with vigor toward the right hand side of the last chart.

How Much Money Can I Make Forex Day Trading?

Getty Images / Sawayasu Tsuji

Many people like trading foreign currencies on the foreign exchange (forex) market because it requires the least amount of capital to start day trading. Forex trades 24 hours a day during the week and offers a lot of profit potential due to the leverage provided by forex brokers. Forex trading can be extremely volatile and an inexperienced trader can lose substantial sums. 

The following scenario shows the potential, using a risk-controlled forex day trading strategy.

Forex Day Trading Risk Management

Every successful forex day trader manages their risk; it is one of, if not the most, crucial elements of ongoing profitability.

To start, you must keep your risk on each trade very small, and 1% or less is typical. This means if you have a $3,000 account, you shouldn’t lose more than $30 on a single trade. That may seem small, but losses do add up, and even a good day-trading strategy will see strings of losses. Risk is managed using a stop-loss order, which will be discussed in the Scenario sections below.

Forex Day Trading Strategy

While a strategy can potentially have many components and can be analyzed for profitability in various ways, a strategy is often ranked based on its win-rate and risk/reward ratio.

Win Rate

Your win rate represents the number of trades you win out a given total number of trades. Say you win 55 out of 100 trades, your win rate is 55 percent. While it isn’t required, having a win rate above 50 percent is ideal for most day traders, and 55 percent is acceptable and attainable.

Risk/Reward

Risk/reward signifies how much capital is being risked to attain a certain profit. If a trader loses 10 pips on losing trades but makes 15 on winning trades, she is making more on the winners than she’s losing on losers. This means that even if the trader only wins 50% of her trades, she will be profitable. Therefore, making more on winning trades is also a strategic component for which many forex day traders strive.

A higher win rate for trades means more flexibility with your risk/reward, and a high risk/reward means your win rate can be lower and you’d still be profitable.

Hypothetical Scenario

Assume a trader has $5,000 in capital funds, and they have a decent win rate of 55% on their trades. They risk only 1% of their capital or $50 per trade. This is accomplished by using a stop-loss order. For this scenario, a stop-loss order is placed 5 pips away from the trade entry price, and a target is placed 8 pips away.

This means that the potential reward for each trade is 1.6 times greater than the risk (8 pips divided by 5 pips). Remember, you want winners to be bigger than losers.

While trading a forex pair for two hours during an active time of day it’s usually possible to make about five round turn trades (round turn includes entry and exit) using the above parameters. If there are 20 trading days in a month, the trader is making 100 trades, on average, in a month.

Trading Leverage

Forex brokers provide leverage up to 50:1 (more in some countries).     For this example, assume the trader is using 30:1 leverage, as usually that is more than enough leverage for forex day traders. Since the trader has $5,000, and leverage is 30:1, the trader is able to take positions worth up to $150,000. Risk is still based on the original $5,000; this keeps the risk limited to a small portion of the deposited capital.

Forex brokers often don’t charge a commission, but rather increase the spread between the bid and ask, thus making it more difficult to day trade profitably. ECN brokers offer a very small spread, making it easier to trade profitably, but they typically charge about $2.50 for every $100,000 traded ($5 round turn).

Trading Currency Pairs

If you’re day trading a currency pair like the GBP/USD, you can risk $50 on each trade, and each pip of movement is worth $10 with a standard lot (100,000 units worth of currency). Therefore you can take a position of one standard lot with a 5-pip stop-loss order, which will keep the risk of loss to $50 on the trade. That also means a winning trade is worth $80 (8 pips x $10).

This estimate can show how much a forex day trader could make in a month by executing 100 trades:

  • 55 trades were profitable: 55 x $80 = $4,400
  • 45 trades were losers: 45 x ($50) = ($2,250)

Gross profit is $4,400 – $2,250 = $2,150 if no commissions (win rate would likely be lower though)

Net profit is $2,150 – $500 = $1, 650 if using a commission broker (win rate would be like be higher though)

Assuming a net profit of $1,650, the return on the account for the month is 33 percent ($1,650 divided by $5,000). This may seem very high, and it is a very good return. See Refinements below to see how this return may be affected.

Slippage Larger Than Expected Loss

It won’t always be possible to find five good day trades each day, especially when the market is moving very slowly for extended periods.

Slippage is an inevitable part of trading. It results in a larger loss than expected, even when using a stop-loss order. It’s common in very fast-moving markets.

To account for slippage in the calculation of your potential profit, reduce the net profit by 10% (this is a high estimate for slippage, assuming you avoid holding through major economic data releases). This would reduce the net profit potential generated by your $5,000 trading capital to $1,485 per month.

You can adjust the scenario above based on your typical stop loss and target, capital, slippage, win rate, position size, and commission parameters.

The Final Word

This simple risk-controlled strategy indicates that with a 55% win rate, and making more on winners than you lose on losing trades, it’s possible to attain returns north of 20% per month with forex day trading. Most traders shouldn’t expect to make this much; while it sounds simple, in reality, it’s more difficult.

Even so, with a decent win rate and risk/reward ratio, a dedicated forex day trader with a decent strategy can make between 5% and 15% a month thanks to leverage. Also remember, you don’t need much capital to get started; $500 to $1,000 is usually enough.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

Forex Trading 2020 – Tutorial and Brokers

Forex trading is a huge market. Billions are traded in foreign exchange on a daily basis. Whether you are an experienced trader or an absolute beginner, finding the best forex broker and a profitable forex day trading strategy or system is complex. So learn the fundamentals before choosing the best path for you.

With this introduction, you will learn the general forex trading tips and strategies applicable to currency trading and online forex. It will also highlight potential pitfalls and useful indicators to ensure you know the facts. Lastly, use the trusted broker list to compare the best forex platforms for day trading 2020.

Read on to discover the A-Z of forex, how to start trading, and how to judge the best platform…

Top 3 Forex Brokers

Why Trade Forex?

The forex currency market offers the day trader the ability to speculate on movements in foreign exchange markets and particular economies or regions . Furthermore, with no central market, forex offers trading opportunities around the clock.

  • Liquidity – In the forex market there is an average volume of over $3.2 trillion dollars traded per day. So, there is an abundance of trades and moves you can make.
  • Diversity – Firstly, you have the pairs stemming from the eight major global currencies. On top of that, many regional currency pairings are also available for trade. More options, more opportunities to turn a profit.
  • Accessibility – The forex market is readily accessible, open twenty-four hours a day, five days a week. As a result, you decide when to trade and how to trade.
  • Leverage – A significant amount of forex currency pairings are traded on margin. This is because leverage can be used to help you both buy and sell large quantities of currency. The greater the quantity, the greater the potential profit – or loss.
  • Low commissions – Forex offer relatively low costs and fees compared to other markets. In fact, some firms don’t charge any commission at all, you pay just the bid/ask spreads. True ECN firms may also offer 0 spread!

Currencies Traded In Forex

Major

In the international forex day trading world, the vast majority of people focus on the seven most liquid currency pairs on earth, which are firstly the four ‘majors’:

  • EUR/USD (euro/dollar)
  • USD/JPY (dollar/Japanese yen)
  • GBP/USD (British pound/dollar)
  • USD/CHF (dollar/Swiss franc)

In addition, there are three emerging pairs:

  • AUD/USD (Australian dollar/dollar)
  • USD/CAD (dollar/Canadian dollar)
  • NZD/USD (New Zealand dollar/dollar)

These currency pairs, in addition to a variety of other combinations, account for over 95% of all speculative trading in the forex market, as well as retail forex.

However, you will probably have noticed the US dollar is prevalent in the major currency pairings. This is because it’s the world’s leading reserve currency, playing a part in approximately 88% of currency trades.

Minor

If a currency pairing doesn’t include the US dollar, it’s known as a ‘minor currency pair’ or a ‘cross-currency pair’. Hence the most popularly traded minor currency pairs include the British pound, Euro, or Japanese yen, such as:

  • EUR/GBP (euro/British pound)
  • EUR/AUD (euro/Australian dollar)
  • GBP/JPY (British pound/Japanese yen)
  • CHF/JPY (Swiss franc/Japanese yen)

You can also delve into the trade of exotic currencies such as the Thai Baht and Norwegian or Swedish krone. However, these exotic extras bring with them a greater degree of risk and volatility.

Finding The Best Forex Broker

The “best” forex broker will often be a matter of individual preference. It may come down to the pairs you need to trade, the platform, trading using spot markets or per point or simple ease of use requirements.

Below are a list of comparison factors, some will be more important to you than others but all are worth considering. Details on all these elements for each brand can be found in the individual reviews.

Lowest Trading Costs

Spreads, commission, overnight fees – everything that reduces your profit on a single trade needs to be considered. High frequency trading means these costs can ratchet up quickly, so comparing fees will be a huge part of your broker choice. Inactivity or withdrawal fees are also noteworthy as they can be another drain on your balance.

Trading Platform

The trading platform needs to suit you. Whether you want a simple cut down interface, or multiple built in features, widgets and tools – your best option may not be the same as someone else’s. Learn more about forex trading platforms here.

Demo accounts are a great way to try out multiple platforms and see which works best for you. Remember also, that many platforms are configurable, so you are not stuck with a default view.

Mobile Trading

Trading forex on the move will be crucial to some people, less so for others. Most brands offer a mobile app, normally compatible across iOS, Android and Windows.

If this is key for you, then check the app is a full version of the website and does not miss out any important features. The download of these apps is generally quick and easy – brokers want you trading. Read more on forex trading apps here.

Customer Service

Is customer service available in the language you prefer? Is there live chat, email and telephone support? When are they available? How high a priority this is, only you can know, but it is worth checking out.

Asset List

Does the broker offer the markets or currency pairs you want to trade? A pretty fundamental check, this one. If you are trading major pairs, then all brokers will cater for you. If you want to trade Thai Bahts or Swedish Krone you will need to double check the asset lists and tradable currencies.

Regulation

Do you want a broker regulated by a particular body – the FCA, SEC or ASIC perhaps? Remember European regulation might impact some of your leverage options, so this may impact more than just your peace of mind. We cover regulation in more detail below.

Spreads Or Commission

Partly covered in trading costs, but the spreads are often a comparison factor on their own.

This is because you are not tied down to one broker. If you trade 3 or 4 different currency pairs, and no single broker has the tightest spread for all of them, then shop around. There is nothing wrong with having multiple accounts to take advantage of the best spreads on each trade. Beware of slippage ‘hiding’ wider spreads too often.

Payment Methods

Deposit method options at a certain forex broker might interest you. Do you want to use Paypal, Skrill or Neteller? Are you happy using credit or debit cards knowing this is where withdrawals will be paid too?

Some forex brokers now accept deposits in Bitcoin or a range of other crypto’s too.

Security

Most brands will follow regulatory demands to separate client and company funds, and offer certain levels of user data security.

Some brands might give you more confidence than others, and this is often linked to the regulator or where the brand is licensed. Foreign exchange trading can attract unregulated operators. Security is a worthy consideration.

Demo Accounts

Try before you buy. Most credible brokers are willing to let you see their platforms risk free. Trading on a demo account or simulator is a great way to test strategy, back test or learn a platforms nuances. Try as many as you need to before making a choice – and remember having multiple accounts is fine (even recommended).

Account Types

From cash, margin or PAMM accounts, to Bronze, Silver, Gold and VIP levels, account types can vary. The differences can be reflected in costs, reduced spreads, access to Level II data, settlement or different leverage. Micro accounts might provide lower trade size limits for example.

Retail forex and professional accounts will be treated very differently by both brokers and regulators for example. An ECN account will give you direct access to the forex contracts markets. So research what you need, and what you are getting.

Leverage

For European forex traders this can have a big impact. Forex leverage is capped at 1:30 by the majority of brokers regulated in Europe. Assets such as Gold, Oil or stocks are capped separately.

In Australia however, traders can utilise leverage of 1:500. That makes a huge difference to deposit and margin requirements. Australian brands are open to traders from across the globe, so some users will have a choice between regulatory protection or more freedom to trade as they wish.

Just note that higher leverage increases potential losses, just as it does potential profits.

Tools Or Features

From charting to futures pricing or bespoke trading robots, brokers offer a range of tools to enhance the trading experience. Again, the availability of these as a deciding factor on opening account will be down to the individual. Level 2 data is one such tool, where preference might be given to a brand delivering it.

Education

Forex trading beginners in particular, may be interested in the tutorials offered by a brand. These can be in the form of e-books, pdf documents, live webinars, expert advisors (ea), courses or a full academy program – whatever the source, it is worth judging the quality before opening an account. Bear in mind forex companies want you to trade, so will encourage trading frequently.

MetaTrader 4 or 5

Integration with popular software packages like Metatrader 4 or 5 (MT4 or MT5) might be crucial for some traders. Many brands offer automated trading or integration into related software, but if you are going to rely on it, you need to make sure.

Bonus

From cashback, to a no deposit bonus, free trades or deposit matches, brokers used to offer loads of promotions. Regulatory pressure has changed all that. Bonuses are now few and far between. Our directory will list them where offered, but they should rarely be a deciding factor in your forex trading choice. Also always check the terms and conditions and make sure they will not cause you to over-trade.

Execution Speed

Desktop platforms will normally deliver excellent speed of execution for trades. But mobile apps may not. While this will not always be the fault of the broker or application itself, it is worth testing.

Scams

Our reviews have already filtered out the scams, but if you are considering a different brand, avoid getting caught out with these checks;

  • Were you ‘cold called’? Reputable firms will not call you out of the blue (This includes emails, or facebook or Instagram channels)
  • Are they offering unrealistic profits? Just stop and consider for a minute – if they could make the money they are claiming, why are they cold calling or advertising on social media?
  • Are they offering to trade on your behalf or use their own managed or automated trades? Do not give anyone else control of your money.

If you have any doubts, simply move on. There are plenty of legitimate, legal brokers.

With all these comparison factors covered in our reviews, you can now shortlist your top forex brokers, take each for a test drive with a demo account, and select the best one for you. We have ranked brokers based on our own opinion and offered ratings in our tables, but only you can award ‘5 stars’ to your favourite!

Read who won the DayTrading.com ‘Best Forex Broker 2020‘ on the Awards page.

Forex Broker Reviews

Use this table with reviews of the top forex brokers to compare all the FX brokers we have ever reviewed. Note that some of these forex brokers might not accept trading accounts being opened from your country. If we can determine that a broker would not accept your location, it is marked in grey in the table.

Forex Broker Reviews
Broker Demo Min Dep. MT4 Bonus
24Option Yes $250 Yes No
Alpari Yes From $/£/€ 5 Yes Yes
ATFX Yes 100 $/€/£ Yes No
Avatrade Yes $100 Yes No
AxiTrader Yes 0 $/€/£ Yes No
Ayondo Yes £1 Yes No
BDSwiss Yes 100 $/€/£ No No
Binary.com Yes $5 Yes No
Capital.com Yes £/$/€100 No No
CityIndex Yes £/$100 Yes Yes
CMC Markets Yes £ 0 Yes No
Deriv.com Yes €/£/$5 Yes No
Easy Markets Yes €100 Yes No
eToro Yes $200 ($50 in US) Yes No
ETX Capital Yes £250 Yes No
Finq.com Yes $100 Yes Yes
Forex.com Yes $50 Yes No
Fusion Markets Yes No Minimum Yes No
FXCM Yes £300 Yes No
FXPro Yes $100 Yes No
FXTM Yes From $10 Yes Yes
IC Markets Yes $200 Yes No
IG Group Yes £250 Yes No
InstaForex Yes $1 to $10 (Account choice dependent) Yes No
Interactive Brokers Yes $10000 No No
Invest.com Yes £0 Yes Yes
Investous Yes $250 Yes No
IQ Option Yes $10 No No
Just2Trade Yes £2500 Yes No
LCG Yes 0 $/€/£ Yes No
Markets.com Yes $100 Yes No
Nadex Yes $250 No No
NinjaTrader Yes $50 Yes No
NordFX Yes $10 Yes No
Oanda Yes $0 Yes No
Pepperstone Yes £200 / $200 Yes No
Plus500 Yes $100 No Yes
Saxo Bank Yes $10000 Yes No
Skilling.com Yes 100 £/€/$ or 1000 NOK, SEK No No
Spreadex No $1 No No
TD Ameritrade Yes None No Yes
Trading212 Yes €/£/$100 No No
UFX Yes $100 Yes No
VantageFX Yes $200 Yes Yes
Videforex Yes $250 No Yes
XM Yes 5 $/€/£ Yes Yes
XTB Yes $250 Yes No
ZuluTrade Yes $1 to $300 (Broker choice dependent) Yes No

Forex Regulation

Regulation should be an important consideration. Whether the regulator is inside, or outside, of Europe is going to have serious consequences on your trading. ESMA (the European Securities and Markets Authority) have imposed strict rules on forex firms regulated in Europe. This includes the following regulators:

  • CySec (Cyprus Securities and Exchange Commission)
  • FCA (Financial Conduct Authority)
  • BaFin – (Bundesanstalt für Finanzdienstleistungsaufsicht)
  • Swiss Financial Market Supervisory Authority (Switzerland)

ESMA have jurisdiction over all regulators within the EEA

The rules include caps or limits on leverage, and varies on financial products. Forex leverage is capped at 1:30 (Or x30). Outside of Europe, leverage can reach 1:500 (x500).

Traders in Europe can apply for Professional status. This removes their regulatory protection, and allows brokers to offer higher levels of leverage (among other things).

Outside of Europe, the largest regulators are:

  • SEC – Securities and Exchange Commission (US)
  • CFTC – Commodity Futures Trading Commission (US)
  • CSA – Canadian Securities Administration
  • ASIC – Australian Securities and Investments Commission

These cover the bulk of countries outside Europe. Forex brokers catering for India, Hong Kong, Qatar etc are likely to have regulation in one of the above, rather than every country they support. Some brands are regulated across the globe (one is even regulated in 5 continents). Some bodies issue licenses, and others have a register of legal firms.

So to reiterate, an ASIC forex broker can offer higher leverage to a trader in Europe.

Which Currencies Should You Trade?

Investors should stick to the major and minor pairs in the beginning. This is because it will be easier to find trades, and lower spreads, making scalping viable.

Exotic pairs, however, have much more illiquidity and higher spreads. In fact, because they are riskier, you can make serious cash with exotic pairs, just be prepared to lose big in a single session too.

How Is Forex Traded?

The logistics of forex day trading are almost identical to every other market. However, there is one crucial difference worth highlighting. When you’re day trading in forex you’re buying a currency, while selling another at the same time. Hence that is why the currencies are marketed in pairs. So, the exchange rate pricing you see from your forex trading account represents the purchase price between the two currencies.

For example – the rate you find for GBP/USD represents the number of US dollars one British pound will buy you. So, if you have reason to believe the pound will increase in value versus the US dollar, you’d look to purchase pounds with US dollars. However, if the exchange rate climbs, you’d sell your pounds back and make a profit. Likewise with Euros, Yen etc

Contracts

Forex contracts come in a range of types:

  • Spot forex contracts
    • The conventional contract. Delivery and settlement is immediate.
  • Futures forex contracts
    • Delivery and settlement takes place on a future date. Prices are agreed directly, but the actual exchange is in the future.
  • Currency swaps
    • Where two parties can ‘swap’ currency, often in the form of loans, or loan payments in differing currencies.
  • Options forex contracts
    • An option gives a trader, the option (but not the obligation) to exchange currencies at a certain price on a date in the future.

Forex Orders

There are a range of forex orders. Some common, others less so. Using the correct one can be crucial.

The two main types of forex orders are:

1. Instant order or Market order

2. Pending orders

Instant Order / Market Orders

These are executed immediately at market prices.

A Buy is an instruction to ‘go long’ or profit from rising markets. A Sell means opening a short position with an expectation of falling values.

Pending Orders

A Stop loss is a preset level where the trader would like the trade closed (stopped out) if the price moves against them. It is an important risk management tool. It instructs the broker to close the trade at that level. A guaranteed stop means the firm guarantee to close the trade at the requested price.

A stop loss that is not guaranteed may ‘slip’ in volatile market conditions, and a trade closed, close to, but not on, the stop level. The shock of the Swiss Franc (CHF) being ‘unpegged’ was one such event.

A Trailing Stop requests that the broker moves the stop loss level alongside the actual price – but only in one direction. So a long position will move the stop up in a rising market, but it will stay where it is if prices are falling. It allows traders to reduce potential losses in good times, and ‘lock in’ profits, whilst retaining a safety net.

A take profit or Limit order is a point at which the trader wants the trade closed, in profit. It is a good tool for discipline (closing trades as planned) and key for certain strategies. It is also very useful for traders who cannot watch and monitor trades all the time.

One Cancels Other

A One Cancels the Other (OCO) Order is a combination of a Stop and Limit order, but if one is triggered, the other order is removed or cancelled. It is an important strategic trade type.

Cryptocurrency

Leading Cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC) and Ripple (XRP) are often traded as a currency pair against the US dollar. These can be traded just as other FX pairs. Their exchange values versus each other are also sometimes offered, e.g. BTC/ETH or ETH/LTC etc.

Charts

Charts will play an essential role in your technical analysis. So you will need to find a time frame that allows you to easily identify opportunities. In fact, the right chart will paint a picture of where the price might be heading going forwards. For example, day trading forex with intraday candlestick price patterns is particularly popular.

See our charts page for further guidance.

Strategy

Any effective forex strategy will need to focus on two key factors, liquidity and volatility. These are two of the best indicators for any forex trader, but the short-term trader is particularly reliant on them.

Intraday trading with forex is very specific. While your average long-term futures trader may be able to afford to throw in 12 pips hedging (smallest price movement is usually 1%) here and cut 12 there, a day trader simply cannot. This is because those 12 pips could be the entirety of the anticipated profit on the trade.

Precision in forex comes from the trader, but liquidity is also important. Illiquidity will mean the order won’t close at the ideal price, regardless of how good a trader you are. As a result, this limits day traders to specific trading instruments and times.

Volatility is the size of markets movements. So, firm volatility for a trader will reduce the selection of instruments to the currency pairs, dependant on the sessions. As volatility is session dependent, it also brings us to an important component outlined below – when to trade.

When To Trade

Despite being able to trade 24 hours a day, 5 days a week, you shouldn’t (Forex trading is not quite 24.7). You should only trade a forex pair when it’s active, and when you’ve got enough volume. Trading forex at weekends will see small volume. Take GBP/USD for example, there are specific hours where you have enough volatility to create profits that are likely to negate the bid price spread and commission costs.

The forex market is alive 24 hours a day because there’s always a global market open somewhere, as a result of differing time zones. Despite that, not every market actively trades all currencies. As a result, different forex pairs are actively traded at differing times of the day.

For example, when the UK and Europe are opening, pairs consisting of the euro and pound are alight with trading activity. However, when New York (the U.S and Canada) are at their desks, pairs that involve the US dollar and Canadian dollar are actively traded.

So, if you were trading EUR/USD pairs, you’ll find the most trading activity when New York and London are open, or Tokyo for JPY and Sydney for the AUD.

Utilise forex daily charts to see major market hours in your own timezone. The below image highlights opening hours of markets (and end of session times) for London, New York, Sydney and Tokyo. Crossover periods represent the sessions with most activity, volume and price action.

Forex Trading Sessions

Each session has a unique ‘feel’:

  • Asian Session: Made up of the Asian markets, opening in New Zealand and Australia and moving west. This session generates lower volume and smaller ranges. The JPY, NZD and AUD are popular markets and news events can move prices significantly.
  • The London (‘European’ Session): Actually kicks off in Frankfurt, and London an hour later. The UK opening sees larger volume in the Forex markets, plus volatility will peak during this session. European institutions, banks and account managers will be active and macro-economic data is released.
  • The New York (US) Session: This opens at 9.30am New York time, but US fundamental data can be released at 8.30am. This can create early volume before the ‘official’ 9:30 opening.

The London and New York ‘crossover’ sees the most volatility and liquidity. Key fundamental data is released, financial institutions trigger forex contracts and ‘smart money’ is involved.

Trading Alerts Or Signals

Forex alerts or signals are delivered in an assortment of ways. User generated alerts can be created to ‘pop up’ via simple broker trading platform tools, or more complex 3rd party signal providers can send traders alerts via SMS, email or direct messages. Whatever the mechanism the aim is the same, to trigger trades as soon as certain criteria are met.

These criterion usually rely on chart patterns and/or candlestick formations. Our charting and patterns pages will cover these themes in more detail and are a great starting point. Paying for signal services, without understanding the technical analysis driving them, is high risk.

It is impossible to judge a service, if you do not understand it.

Traders who understand indicators such as Bollinger bands or MACD will be more than capable of setting up their own alerts.

But for the time poor, a paid service might prove fruitful. You would of course, need enough time to actually place the trades, and you need to be confident in the supplier.

It is unlikely that someone with a profitable signal strategy is willing to share it cheaply (or at all). Beware of any promises that seem too good to be true. You can read more about automated forex trading here.

50 Pips A Day

If you download a pdf with forex trading strategies, this will probably be one of the first you see. Beginners can also benefit from this simple yet robust technique since it’s by no means an advanced trading strategy. However, before venturing into any exotic pairs, it’s worth putting it through its paces with the major pairs.

So, when the 07:00 (GMT) candlestick closes, you need to place two contrasting pending orders. Firstly, place a buy stop order 2 pips above the high. Then place a sell stop order 2 pips below the low of the candlestick. As soon as price activates one of the orders, cancel the one that hasn’t been activated.

In addition, make sure you place a stop-loss order anywhere between 5-10 pips above the 07:00 high/low. This will help you keep a handle on your trading risk. Now set your profit target at 50 pips. At this point, you can kick back and relax whilst the market gets to work.

If the trade reaches or exceeds the profit target by the end of the day then all has gone to plan and you can repeat the next day. However, if the trade has a floating loss, wait until the end of the day before exiting the trade.

But for more detailed examples, see our strategies page on intraday trading techniques.

Video Demonstration

Get access to an IQ Option demo account here.

Forex Trading Software

There is a massive choice of software for forex traders. Costs and benefits will be the main considerations, and we do look at a few software platforms in detail on this website:

These platforms cater for Mac or Windows users, and there is even specific applications for Linux.

Social trading (or ‘Copy trading’) platforms are another variety of software associated with forex trading. The leading pioneers of that kind of service are:

We expand on the choices for software trading platforms page and on our Software page.

Education

If you want to increase that forex day trading salary, you will also need to utilise a range of educational resources:

  • Books You can get profitable strategies books, books on scalping, regulations, price action, technical indicators, and more. In addition, there are plenty of niche books. So, you can find the best books on strategies for beginners or two-step trend analysis, for example.
  • Chat rooms & forums – Day trading forex live forums are a fantastic way to learn from experienced traders. Some will even share their best free trading systems. Just beware the quality of advice.
  • Blogs – If you want to hear success stories from forex millionaires, then day trading forex blogs might be the place to go. Again, tread carefully with any advice offered.
  • Forex websites – There are a number of specific forex websites. Some offer free signals, techniques for spotting trend lines and setting up your platform.
  • PDFs – Online you will find a number of forex trading system PDFs. Unlike live chat rooms, charts will often be provided to support written evidence.

Money Management

The most profitable forex strategy will require an effective money management system. One technique that many suggest is never trading more than 1-2% of your account on a single trade. So, if you have $10,000 in your account, you wouldn’t risk more than $100 to $200 on an individual trade. As a result, a temporary string of bad results won’t blow all your capital.

Then once you have developed a consistent strategy, you can increase your risk parameters. The Kelly Criterion is a specific staking plan worth researching.

Automation

Automated Forex trades could enhance your returns if you have developed a consistently effective strategy. This is because instead of manually entering a trade, an algorithm or bot will automatically enter and exit positions once pre-determined criteria have been met. In addition, there is often no minimum account balance required to set up an automated system.

However, those looking at how to start trading from home should probably wait until they have honed an effective strategy first.

For further guidance, see our automated trading page.

Taxes

When you read a blog about forex traders, such as ‘a day in the life’, they often leave out the impact of tax. In fact, it is vital you check the rules and regulations where you are trading. Failure to do so could lead to legal issues.

See our taxes page for details.

Webinars & Training Videos

They are the perfect place to go for help from experienced traders. This is because forex webinars can walk you through setups, price action analysis, plus the best signals and charts for your strategy. In fact, in many ways, webinars are the best place to go for a direct guide on currency day trading basics.

3 Mistakes To Avoid

1. Averaging Down

While you may not initially intend on doing so, many traders end up falling into this trap at some point. The biggest problem is that you are holding a losing position, sacrificing both money and time. Whilst it may come off a few times, eventually, it will lead to a margin call, as a trend can sustain itself longer than you can stay liquid.

This is particularly a problem for the day trader because the limited time frame means you must capitalise on opportunities when they come up and exit bad trades swiftly.

2. Trading Too Soon After the News

Big news comes in and then the market starts to spike or plummets rapidly. At this point it may be tempting to jump on the easy-money train, however, doing so without a disciplined trading plan behind you can be just as damaging as gambling before the news comes out. This is because illiquidity and sharp price movements mean a trade can quickly translate into significant losses as large swings take place or ‘whipsaw’.

The solution – wait for the volatility to subside and you can verify the trend.

3. Days of Interest

It’s great having an effective once a day trading method and system. However, even a consistent strategy can go wrong when confronted with the unusual volume and volatility seen on specific days. For example, public holidays such as Christmas and New Year, or days with significant breaking news events, can open you up to unpredictable price fluctuations.

Countries

The country or region you trade forex in may present certain issues. For example, forex traders in the USA and Canada will need to read up on pattern trading rules (Canadian traders have it slightly easier).

Trading in South Africa might be safest with an FSA regulated (or registered) brand. The regions classed as ‘unregulated’ by European brokers see way less ‘default’ protection. So a local regulator can give additional confidence. This is similar in Singapore, the Philippines or Hong Kong. The choice of ‘best forex broker’ will therefore differ region by region.

Trading forex in less well regulated nations, such as Nigeria and Pakistan, means leaning towards the more established European or Australian regulated brands.

Forex Trading; Is It Profitable?

Many people question what a trader’s salary is. However, the truth is it varies hugely. The majority of people will struggle to turn a profit and eventually give up. On the other hand, a small minority prove not only that it is possible to turn a profit, but that you can also make huge returns. So it is possible to make money trading forex, but there are no guarantees. 75-80% of retail traders lose money.

Bottom Line

Currency is a larger and more liquid market than both the U.S stock and bond markets combined. In fact, a surplus of opportunities and financial leverage make it attractive for anyone looking to make a living day trading forex.

Unfortunately, there is no universal best strategy for trading forex. However, trade at the right time and keep volatility and liquidity at the forefront of your decision-making process. Follow these general rules for FX day trading and you’ll be on the right path.

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