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PR04 - Basics of Day Trading in the forex markets

"Among the different styles of trading, day trading is probably something that many will recognize. As the name suggests, day trading is all about trading during the normal business hours within your geographical location. With day trading, profits and losses can quickly rack up. Therefore, you need to be very skilled in managing your risk and get enough practice trading the markets. Unlike scalping, day trading can be a bit slow, but still it is action packed. Not many can afford to day trade due to their regular full time jobs. But for those who are able to day trader, they will notice that it is a lot more difficult than day trading is made out to be. Not every trader can manage the risks and the stresses that comes with day trading. In this article, we give you the insights into how to day trade the forex markets and also point out the things that you should bear in mind."

Day trading is probably the most common term you might have come across in the forex markets. Day trading, as the name suggests is all about trading during the day, or during the normal business hours.

While the forex markets are open 24 hours a day, most of the action happens during the normal working hours or a business day. Of course, this can depend whether you are based in Asia, or Europe or the U.S.

With day trading, a trader’s main goal is to find trading opportunities that can be opened and closed during the span of a trading day. A typical trading day is usually eight hours. As you can already see, with day trading, you will need to trade during working hours.
Many dream of becoming a full time day trader, but few are able to achieve this level of success.

Day trading requires a lot of discipline to be maintained in the first place. You cannot expect to be come a day trading success within a short span of time. You will need to spend a lot of time to stay on top of the markets.

Day trading is done when a trader starts off when the markets open. This is done depending on the geographical location they are based in. The trading strategies used with day trading can differ from scalping or longer term based trading known as swing trading.

Most common trading strategies used with day trading

With day trading, the analysis is mostly confined to time charts that are up to one-hour. Anything above the one-hour chart will most likely require you to keep your positions open overnight, unless you are aiming for small pips in profits.

It is important to have a good amount of capital as well. When the value of the pip increases, the chances of you making a profit from small moves in the market is also high.

Day traders use a number of trading strategies to be successful with day trading. Trading is mostly driven by technical analysis, with the volatility come from the market open or close or through the news events that are released during the day.

Pivot points are one such examples where day trading fits in, alongside using some technical indicators.

The risks of day trading means that the trader can end up overtrading. Overtrading is a major risk as it pushes you to take on undue risk. This can erode the profits you have already made.

With day trading it is also easy to get drawn into the emotional aspect of it. Therefore, day traders should have a good trading plan on hand if they want to be successful with day trading.

You will also most likely be incurring more costs because of the number of trades you take during the day.

Therefore, being disciplined is important. Especially, to stay out of the markets after you have taken a loss. A trading plan is very essential to your success in day trading. This will ensure that you follow a trading plan and stay logical for the most part and remain objective.

The trader also needs to keep an eye out on the market developments as they change and shift through the day. Day trading requires a lot of dedication. Therefore, this is a trading style that might be suited for everyone.

If, for example you have a full time job, it can be difficult for you to focus on day trading. This is where it is ideal that you choose another style of trading. Day trading requires a certain level of psyche that not many are built for.

Most of the big prop trading firms are usually day traders. They open and close their positions during the day. This is in contrast to hedge funds where they follow a much more longer term style of buying and holding the security.

Day trading can be done with the use of various technical indicators such as moving averages, oscillators and so on. You can also automate your trading strategy if it is simply rule driven.

Traders can also look at price action based trading which is somewhat discretionary compared to using technical indicators which are logically driven.

The potential to increase your profits is high. But this is only available if you are able to be disciplined and can manage your risk consistently on a day to day basis. Day trading can also take a mental toll because of the stress especially when you are hit by a string of losses.

Therefore, before you want to become a day trader, weigh the pros and cons.

Read 906 times Last modified on Saturday, 13 July 2019 17:10