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Last Updated on August 26, 2022 by Eddu Oz
Taking profit in small bits with a view of closing all trades before the end of the day or trading session is called day trading. Day traders exploit a set of forex day trading techniques to profit from their trades.
The hourly, daily, and weekly charts are a day trader’s favorite, charts are the forex traders’ compass. Analyzing the direction of a currency pair and movement is only possible when the proper technical analysis is done.
From these analyses, predictions arise for the next hour, three hours and sometimes the whole day.
Quality and consistent technical analysis broaden the trader’s horizon. When a trader is conversant with the characteristics of a set of currency pairs, he can confidently make accurate predictions.
Forex Day Trading Techniques
To day-trade, one must actively study the charts while staying alert for possible Breaking News, economic or government pronouncements that could influence his trade.
Calculated decisions and quick action are character traits of day traders, one must be able to think on his feet and be decisive to succeed in day trading. However, not all quick decisions result to profit.
An uptick in prices or the reverse waits for no one. Even if resistance or support levels initially analyses goes south, the trader will have to make his closing decision before the day ends in other to avoid overnight risks and brokerage fees.
A day trader’s risk management and good money management should be leakproof. Determining the lot size to trade, leverage, and stop-loss measures differentiate traders who would be around for the short term from those in for the long-term.
We will examine a combination of techniques for day trading that works and your can profit from if applied well.
The psychology behind scalping is that smaller profits will make a up pool of profit. A day trader must learn to recognize sharp price upticks and take quick action, there are no time for questions or sobbing when trades goes south.
Scalping is very profitable for confident traders as every new day presents new opportunities to make money. Positions are taken and exited in seconds.
Traders lacking the courage to jump in at mid-high price volatility may not day trade. As price drops, the day trader gets out of the trade to limit losses. If you’re not decisive, confident, day trading may not be ideal for you.
Pull-back or Range trading
As currency prices trend upward or downwards depending on the trader’s position in the curve, either to buy or sell, there is usually a “pull back” in prices that could occur before the currency takes a major leap or plunge.
This called the pull-back. This phenomenon occurs on virtually all currency pairs but most evident on volatile currency pairs.
This move is natural, technical analysis may not spot this move, but expect it during your trades possibly as you initiate your trades. There is no definite time frame on any currency pair.
This technique applies more to stock trading. A trader moves in on a stock trending upwards if he plans to sell high anchored on a news update. For example, a company declared an impressive earning for the quarter or a mouthwatering proposed dividend payment to shareholders etc.
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Further to the news, the trader enters the trade at a price and then sets a stop loss as protection if the company’s declarations are not strong enough to sustain the upward trend. Momentum trading is prevalent with smaller stocks having low outstanding number of shares.
When prices rise above a previous resistance level or falls below support level, a breakout trade can be exploited. Breakout trading is not so easy to see in charts. In some cases, the price will rise after hitting a support level.
Depending on the side of the curve, buying or selling after a price breakout is the very opportunity traders look for.
News centric trading
This is “trading the news”. For instance, a major plunge in oil prices may cause traders to wait for lowering of dollar prices to place a trade.
Major events are seasonal, they are a trader’s profiting or doom season, trading the news requires caution.
Elections, economic sabotage, territorial unrest causes gaps in an economy which in turn impacts a currency most times negatively, causing a plunge in prices.
Smart traders exploit these economic gaps and profit from the forex market.
Day trading is promising and gives traders daily opportunities to adjust their strategies. Trading a single strategy or a set of strategies balances out your approach to day trading.
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