Forex day trading is a short-term trading style that entails the opening of a position in the foreign exchange market and closing it within a single trading day. This is because traders will enter several forexes trades every day and will generally exit them before the end of the trading session, meaning that there is little need to carry overnight positions.

The high volatility of the liquid currency pairs can offer a great number of opportunities to day traders, which is why they are going to choose the currency pairs that are characterized by a high level of liquidity.

What is forex day trading?

Day trading is a trading approach in which trades are closed before the end of the day, and it is common in the forex market among small investors. This can be a fast way of obtaining returns on an investment.

Day trading Forex is ideal for those traders who have ample time to study the market and watch their charts for the day.

How to start day trading forex?

• Click on the link to open a live account and start trading now or try your hand at a risk-free demo account with virtual money.
• Select your product from spread betting and Contracts for Difference CFDs.
• Find information about the forex market and read our day trading guide to learn some fundamentals of how to achieve success.
• Technical analysis is important for trading, so you should refresh your memory regarding price charts and technical indicators.
• Ensure that you employ risk management tools such as stop loss in an effort to minimize losses on your capital.

Forex day trading strategies

In trading the foreign exchange market, it is prudent that traders get acquainted with the various approaches to trading. In normal conditions, forex trading will entail either technical analysis or fundamental analysis or even both.

This analysis will be used by forex day traders to determine when to go long or short a particular currency pair. Given the dynamic nature of markets and their daily fluctuations, forex day trading tips must be adapted accordingly, especially during periods of high market liquidity.

1. Forex news trading

Traders will prefer the short-term horizon of trading news releases in the process of trading. It might be beneficial to the traders if they get to know what is taking place in the markets so that they can be able to make some trading decisions beforehand, and also to be in a position to set their trading objectives and trading strategies at the beginning of the day.

Interest rates, central bank announcements, and other data releases are some of the factors that affect currency prices and therefore, as a day trader, it is necessary to monitor the major economic events and news.

2. Trend trading

Another common method that traders use in forex day trading is through trend trading. This takes time by focusing on the larger time frames to look for a particular trend.

Following the general trend, traders would then turn to a chart that displayed trends within a shorter time period and moving in the same direction. Indicators and drawing tools are some of the features of our advanced trading platform that can be used to help the trader make decisions.

3. Momentum trading

Another popular forex trading technique is the momentum trading strategy. This approach is based on the assumption that it is possible to identify assets that are showing large price movements in the direction of the trend and at the same time have a large trading volume.

Momentum trading also involves ability to wait for the right time to enter the market and open a specific position. The traders could use our specialized momentum indicator to identify momentum in the forex market.

4. Identifying breakouts

Breakout trading is one of the most popular forex day trading strategies, which is based on waiting for a large market move. Such big moves can be triggered by factors such as changes in data in the economy of a particular country.

They can be observed at any given time or after the occurrence of some economic stimuli such as the release of economic data. In breakout trading, a trader would have to wait for prices to break past key support and resistance levels signifying the onset of a pattern.

The trader would then go on to establish a position in the particular direction of their anticipated price movement. Trading forex breakouts is an effective approach to trading for those who are interested in current economic and political events.

Forex day trading is all about responding to short-term changes in the forex market and therefore, this needs some form of control, concentration, discipline and the ability to adhere to a trading plan.

They have technical indicators and drawing tools available on our trading platform, which enables traders to come up with possible entry and exit points in the trade.

Is forex day trading profitable?

The concept of forex day trading can be quite lucrative when the trades being made are good and if the trader is willing to spend time studying charts and data. But at the same time, there are many drawbacks of this short-term approach as well.

The risks associated with forex day trading include a high likelihood of loss of capital. There is consensus that trading within limited time intervals may lead to more risks for the trader. Trading forex margin in currency pairs such as through spread bets or CFD trades can increase the trader’s risk.

Margin trading involves placing a small amount of money which provides traders with leverage to bigger trading sizes. The risks are also higher, though, as the trader can lose more than the money deposited if the prices go the other way.

Generally, it is advisable to minimize the exposure of risk per trade you make. For instance, it is possible to set a rule that one percent of the total trading account balance should be used to trade.

It is crucial to note here though that stop-loss orders are not a guarantee that your position will be closed at the specified price. Prices may shift from one level to another especially during conditions of turbulence in the market.

The best forex trading signals for day trading

The knowledge of chart types and how technical indicators should be implemented is pivotal to any day trading approach in forex. It does not involve holding any security for more than a day, and therefore, quick decisions need to be made.

This should not be an effort that slows down the trader’s trading but an effort that enables the trader to read charts efficiently and accurately.

The following technical indicators can be used on forex day trading charts:

• Fibonacci retracements
• SMA is the first and easiest type of moving average.
• Bollinger Bands
• Stochastic oscillator
• Relative strength index
• Rules of forex day trading

It is important that forex day traders have adequate knowledge of the order types available to them. This applies to entry and exit in the markets as well. Orders can be useful for traders to decide on when to enter a trade and therefore get the best possible price, or when to exit a trade to minimize loss.

Traders should always take their time and learn about a broker before engaging in business with them since there are brokers who are not fully regulated by the regulatory authorities in the country.

Every forex broker must meet some level of regulation. In the UK, traders should ensure that the broker they are dealing with is fully regulated and has permission to operate from the Financial Conduct Authority (FCA).

Conclusion

It is a practice in forex trading that is commonly used as a means of gaining profits within a single day. However, certain key factors should be considered for successful forex day trading.

Like with any trading strategy, the forex day trading also has its risks involved. When trading contracts like spread bets or CFDs, the use of leverage is employed by the trader. This can be dangerous when used in extreme when day trading coupled with volatile currency pairs which may result in large losses.

Every trader who deals with forex trading on a daily basis should make sure that they are able to use measures that will help to reduce their losses such as using stop orders.