trading So, you want to be a day trader in Forex. But you do not know how to start or where to start in Forex or the best day trading strategies. Here is a simple guide that will help you day trade in Forex.
But, before going into the core area, let’s first discuss the pros and cons of day trading.
What is day trading?
Day trading is a style of trading where a trader opens his order and closes it on the same day. You get small profits a day, and if you’re consistent, you can build wealth around it. It is like accumulating the tiny droplets each day and making it into an ocean. For those who don’t know the long-term game, it is their best shot. Mind you, it takes time, intense discipline, and agility, and there is a considerable risk too.
Why should you do day trading?
Day trading is ‘make or break’ on the same day. And so there are significant risks associated with it. Yet, day trading lures many. Why?
You can learn quick
Investments and long-term trading have a longer horizon. So, you get to know the correctness of your choice after that said period only, say six months or even 2-3 years.
Like it or not, a trader gets defined by the mistake he/she makes. And how they learn from it.
Day trading simplifies it for you. You get to know the rights and wrongs on that day itself. So, you can cut to the chase in a jiffy.
Hence, it is like a crash course to learn.
Here is a list of rookie mistakes that can kill your trading account. Learn it and do not repeat it.
Low capital requirement
Generally, for intraday trading, brokers across the world offer high leverage since you’re closing the position on the same day. However, if you’re from the US, you have ‘pattern day rule,’ which requires you to maintain a minimum balance of $25,000 to day trade. In forex trading, you have no such restrictions; you can trade with capital as low as $50.
It’s an income, not returns
When you day trade, you make profits (or loss) daily. So, it becomes a second income for you. And if you’re good at it, you can make a massive cash flow like a business. Suppose if you’re bad, you can go bankrupt like a business too.
But, you have a business in hand, and you’re solely responsible for the happenings.
Are you a beginner? Looking to start trading from home? Here are the nuts and bolts to do it. Know more here.
What are the prerequisites for day trading?
Although the market doesn’t discriminate against anyone, you need certain things to be a successful trader. The list follows.
Ideal Capital for day trading
‘You can even start trading with a capital of $5 or $50’ is just a figure of speech. In the real world, you need good capital.
An ideal capital would be $500, assuming your lot size is 0.02-0.05.
Don’t punch above your weight early on in your career.
Go for a smaller lot size initially, and once you gain confidence, increment it. Further, if you’re confused with lot sizing for different currency pairs, here is a handy tool for you.
Tools and Indicators
In forex trading, you don’t need fancy software because Metatrader has got it all. It renders the chart and has the default indicators and analytical objects to make it easier.
However, if you’re a day trader, you need specific exclusive tools.
The news releases usually dictate the sentiment for the day. And you shouldn’t be toggling between tabs to check out the news. Here is a free tool that can bring data directly to your Metatrader terminal.
Know the Session
Although the forex market is 24×5, the trades are not done by the same set of traders. Traders and institutions around the world trade on the market every day.
And so, the volatility and liquidity will be maximum at particular session timings. It differs from asset to asset as well.
Hence, you need to memorize the time zone of prominent exchanges or can simply download this free session feed indicator.
You have the option to use generic indicators, which are used by traders across the world. Or you can have indicators that can give you an edge.
Pipbreaker — A simple to use indicator, which comprises strategy for 3 trading modes — scalping, short-term and long-term trading. It is the perfect indicator for a beginner. If you’re one, check it out here.
Velocity Finder — The next-gen indicator that makes 200+ algo calculations in milliseconds and lets you compare multiple timeframes.
The herd mentality can kill you when the market is choppy. A unique, exclusive indicator can always fetch you better results. Know more here.
When you trade more, you tend to pay more to your broker as well in the form of spread and commissions. Like any business, you need to try and cut down your costs. Hence find brokers who offer lower spreads.
Here is a reliable broker who offers lower spreads and exclusive additional tools, as well. Check it out.
Related:- 15 Must Know Tax Saving Tips in India
2 Best Day Trading Strategies
There are many day trading strategies. Some are proprietary, which gives an edge to its creator (trader). While there are others which are rudimentary, yet valid till date. And the market rewards both in the same way. So, here are two trading strategies that could help your endeavor.
#1 Box breakout
Every asset goes through a contraction phase. It can be in the midst of a trend or result in a reversal. So, you shouldn’t anticipate the direction when the market is inside the box. Instead, take the cue when it breaks out.
You can draw a box to the range — high and low of the sideways movement. The breaking of which leads to significant action.
n the above chart, USDJPY was stuck in a range of 108.143 – 107.784 for two days. And once it broke, it yielded a significant down for the day. And the subsequent days also, the box provided substantial resistance to the counter.
The larger the box formation, the bigger the ensuing move. And it doesn’t happen on the same asset frequently. So, you need to multiple asset classes under your radar and hop in when a breakout happens.
#2 Sentiment trading
Well, this is a tricky one. But its highly effective on day trading, of late. Whenever a bull run or bear run happens, a sentiment prevails in the market.
For instance, the trade war between the US and China over the past year (2018-19) has made investors wary of risks. Hence, investors braced risk assets like gold and silver. They have had over-stretched rallies during the period defying technicals and fundamentals.