Day trading Forex is an excellent way to make fast money online these days. Foreign Exchange or FOREX for short is the largest and the most liquid market in the world. The Forex market is open 24 hours a day and five days a week. It is this reason that Forex is the ideal if not the best financial market for day trading.
Successful Day Trading Video
One of my successful day trading captured in the video. Watch this first before you continue reading the rest of the article details below.
Table Of Contents
- How Day Trading Works
- Risk Management
- Ideal Pairs To Day Trade
- Tools And Trading Platforms
- Day Trading Strategies
- Successful Day Trading
- Rules In Day Trading
- Advice For Beginning Traders
In this article, I will try to explain day trading and how day trading Forex is different from other styles of trading and investing. In the process, I also describe essential day trading strategies that many traders use each day.
If you are a beginner trader, this article will hopefully equip you with an understanding of where to start, how to start, what to expect from day trading, and how you can develop your own day trading strategies.
Reading this article will not make you a profitable trader. Profits in trading do not come from reading one or two article, but, as I will explain later, profits come with practice, having the right tools and ongoing education.
You don’t need to master complicated new trading strategies every day just to become a consistently profitable trader. The approach I will discuss throughout this article are the ones that traders have used for decades and they have worked so far. Work on simple, well-known strategies, but adjust them over time to complement your personality and lifestyle.
And the most important lesson that you can learn from reading this article is that you will not get rich quickly by day trading. Day trading is not similar to gambling or playing the lottery. This is the most fundamental misconception that people have about day trading, and I hope you will come to the same conclusion after reading this article.
Brokers do not usually release client statistics to the public. But as ESMA took effect on August 1, 2018, brokers are forced to display the percentage of their winning clients.
Records indicate that on average, only 24% of day traders made money and roughly 76% of traders lose. It is very easy to be one of that 76% of traders who are losing money if you don’t know what you are doing and you have no idea how day trading works.
How Day Trading Works
As a day trader, you’re looking for currency pairs that are moving in a relatively predictable manner, and you will only be going to trade them within the current daily session. You will not keep any position past the current daily session.
For example, If you open a position for the EUR/USD pair today before the London Session begins, you will not hold your position overnight and close it after the New York Session.
If you hold onto any positions after the New York Session, it is no longer called day trading because it’s now called swing trading.
Swing trading is a form of trading in which you hold positions over a period, generally from one day to a few days if not weeks. It is an entirely different style of trading, and you shouldn’t use the strategies and tools that you use for day trading to do swing trading.
Buying Long, Selling Short
When a day trader opens a BUY position in the hope that the current spot price will go higher, this is called BUYING LONG, or simply LONG. When you hear a forex trader say, “I am LONG 1 lot EURUSD,” this means that this particular trader opens up 100,000 units of Euros at the current spot price in US Dollars and hoping to SELL EURUSD at higher spot price to profit for the difference.
BUYING LONG Example: You BUY EURUSD at the current spot price of 1.17 and if the spot price goes up to 1.18, you profited 100 pips.
Going LONG is good when the price is expected to go higher. But what if spot prices are dropping? In that case, you can SELL SHORT and still make a profit. Unlike in Stocks trading where SHORT SELLING is not allowed, you can easily switch sides in Forex trading. You can be a BUYER or a SELLING at any point in time and you can reverse your positions if need be.
So if a day trader opens a SELL position in the hope that the current spot price will go lower, this is called SELLING SHORT, or simply SHORT. When you hear a forex trader say, “I SHORT 1 lot EURUSD,” this means that this particular trader opens up 100,000 units of Euros at the current spot price in US Dollars and hoping to BUY EURUSD at higher spot price to profit for the difference.
SHORT SELLING Example: You SELL EURUSD at the current spot price of 1.18 and if the spot price goes down to 1.17, you profited 100 pips.
Retail vs. Institutional Traders
Individual traders, like you and me, are called retail traders. We can be part-time traders or full-time traders, but we’re not working for a firm, and we’re not managing other people’s money. We retail traders are a small percentage of the volume in the market.
On the other hand, there are so-called institutional traders such as Investment banks, proprietary trading firms, mutual and hedge funds. These companies employ sophisticated computer algorithms and high-frequency trading for their day trading activities. Rarely is any human involved in the day trading operations of these large accounts.
Through whatever means, institutional traders have considerable money behind them, and they can be very aggressive. So you might think, “How can an individual trader, like you and me, coming later to the game, compete against institutional traders and win?”
The institutional trader’s main issue is that they must trade, while we, individual traders, are free to wait for the right opportunity to come or to stay out of the market while the market if no trading opportunity exists at the moment while Banks must be active in the financial market and trade large volumes at almost any price.
A retail trader is free to wait for the best opportunities to arise. Unfortunately, the majority of retail traders fritter away this fantastic advantage by overtrading. The ultimate problem of losing traders is not their account size but their lack of self-discipline, overtrading, and their bad money management.
If you want to succeed against these giant participants in the market, you need to develop patience and entirely eliminate greed.
High-Frequency Trading (HFT)
Some if not all Institutional traders base off their trading on sophisticated computer algorithms and high-frequency trading (HFT).
You may have heard these term in many Forex related forums and facebook groups, it is this mysterious “black box,” the secretly hidden computer programs, formulas, and systems that try to manipulate the Forex market.
Some will say that since you can’t beat a computer or the high-frequency trading, why even bother trying. To me, this is merely an excuse for not doing well and not working hard enough.
Many successful day traders including myself have beaten these “black box,” and have profited very nicely in the process.
High-frequency trading has made trading more difficult and complicated for the individual day trader. It can frustrate you sometimes and stress you out. Some of these programs are deliberately designed to go after and beat us day traders by hunting our stop-loss orders.
But the best way to overcome them is to be very selective when you make a trade and to monitor the price action very, very carefully. Find these moments when the computer formulas and algorithms cannot take your money. Find your entry point. Make your move. Make your exit. Take your profit.
I believe one of the most significant challenges with High-frequency trading is that the computer programmers who work so many hours each day on the formulas don’t have a clue how to day trade themselves.
Past market data is precious for both humans and computers, but the Forex market is not 100% predictable. It is always changing.
There is an uncertainty about it that no computer programmer can adequately prepare for in advance. It’s impossible to program every single variable. As you observe the Forex market in real time, you will see those unpredictable moments, and you will profit in them. You must be very strategic with every trade you enter.
To become a successful day trader, you need to master three essential components of trading:
- Sound Psychology,
- Profitable trading strategies, and
- An eﬀective risk management plan.
These are like the three legs of a stool – remove one and the stool will fall. It is a typical beginner’s mistake to focus exclusively on trading strategies.
Beginning Forex traders who fail to make money in the Forex market get frustrated and go out and try to learn more about how the markets work, study new strategies, adopt additional technical indicators, follow some different traders, and join other chatrooms.
They don’t realize that the leading cause of their failure is often a lack of self-discipline, the making of impulsive decisions and sloppy risk and money management, not their technical knowledge.
In day trading and trading in general, you are the problem. And you are the only solution to this problem.
A good trading strategy delivers positive expectancy; it generates greater profits than losses over a long period.
All of the approach mentioned here, if executed properly, will show positive expectancy. But, never forget that even the most carefully executed plan does not guarantee success in every single trade.
No trading strategy can assure you of never having a losing trades. And suffering a series of losing trades is part of the Forex trading game. This is why risk control must be an essential part of every trading strategy.
As the old adage said, “live to play another day.” This simple saying says so much about the mindset of a professional trader.
If you survive the learning curve, then the good times will come, and you can become a consistently profitable trader. But you have to endure. And many just can’t.
The inability to manage losses is the number one reason that new traders fail in day trading. It’s a common human inclination to accept profits quickly and also to want to wait until losing trades return to break-even.
By the time new traders learn to manage their risk, their accounts are blown up. You must learn risk management rules and firmly implement them if you want to become successful in day trading Forex.
Why do most traders fail? Imagine three traders place the exact same trades and all of them lose money.
The first trader becomes discouraged, curses the market, and gives up for the day. The second trader reacts with frustration, trades more aggressively to get his money back, and loses even more by the end of the day. The third trader pauses his/her trading, walks out for a few minutes to reassess her emotions, comes back to his/her desk, re-evaluates her strategy, waits for a clear signal of opportunity, and places a good trade that brings break-even trades by the end of the day.
What is the difference among these traders? The answer is that success and failures are based on how traders behave and how they control their emotions. That is what determines winners from losers.
The main reason why many traders fail is that they take negative events and losses in trading personally. Their confidence and peace of mind are connected to their trading results.
When traders do well, they feel good. When they encounter losses, they become discouraged, doubtful, and frustrated, questioning themselves, their strategy and their career.
Instead of dealing directly and constructively with their losses, they react to the emotions triggered by their personalizing of the events. Profitable traders trade based on logic and skills and not for money.
Almost all professional traders hide their unrealized Profit and Loss (P&L) column while in a trade. They have no interest in seeing how much they are up or down. They focus on the perfect execution of a profit target or a stop loss level.
A consistently profitable trader take every negative or positive trade they make as an opportunity to improve themselves.
You to make quick decisions if your day trading while at the same time, you need to be very disciplined. Every morning or at the start of a new day session, you should scan the market to find trading opportunities. And sometimes in a matter of seconds, you need to make decisions on whether you should buy or sell, and you need to make that call with a high degree of discipline.
You may not know this but your state of alertness, your energy level, and your overall health have a significant impact on your daily trading results. Fatigue, physical tension, and ill health will often affect your concentration and adversely affect your sound decision-making process.
It is difficult to make and sustain the required mental efforts for day trading when you lack proper sleep or feel down from a lack of exercise. Very often, your moods are influenced by your physical state, even by factors as delicate as what and how much you eat.
Keep a daily record of both your trading results and your physical condition and you will see these relationships for yourself. Begin preventive maintenance by keeping your body, and thus your mind, in their peak operating condition.
Your personal life outside of trading can also affect your decision making as a trader. For example, it is common for beginning traders to experience stress if they are in bad need of money. These financial problems create additional worry and stress in trading.
Ideal Pairs To Day Trade
As with the old adage, “You are only as good as the stocks that you trade.” This is a famous expression in the Stocks trading community and is completely true in Forex trading as well.
Common to beginning traders is that they do not know what currency pairs to day trade and how to even find one. And after their time and money are wasted, they quit mistakenly believing that the market is impossible to day trade in.
You can be the best trader in the world, but if your positions do not move, nor have enough volatility, then you cannot make money consistently. Trading a pair that doesn’t move is day trading wasted. As a day trader, you must be efficient with your time and your account margin power.
Now, we don’t want currency pairs to just move, but we seek pairs where we can identify that they are about to move in a certain direction. It is possible that a currency pair that moves $5 intraday may never offer us excellent risk/reward opportunities. Some pairs move too much intraday without foreshadowing their direction.
As a new trader, it’s challenging to find the right currency pairs for day trading. In fact, I often get emails from traders saying that they struggle with how to find the right pairs to trade. Many of them understand how trading works and have the right education and has the tools for day trading, but when it comes to actually find pairs to trade in real time, they are clueless.
I certainly experienced this as a new trader. And even if you learn the strategies as explained later in this article and you still cannot make money consistently, it is possible that you are picking the wrong currency pair.
Again, you are only as good as the pairs you trade. You need to find the currency pairs that have enough intra-day volatility. And there is more than one way to select these currency pairs and make money just by trading them.
Some traders are looking for pairs to trade using individual currency strengths and weakness. For example, When US Dollar (USD) is currently weak and the Japanese Yen (JPY) is strong at the moment, it is just logical to trade and BUY the USDJPY pairs capitalizing on the individual currency strength and weakness.
In the screenshot above, both the 1-hr chart of US Dollar Index at the left and the 1-hr chart of USDJPY was taken at the exact same time. While the US Dollar Index is down, USDJPY rallies. This is the classic example of capitalizing on the Currency Strengths and Weaknesses.
Some day traders like to find pairs to trade using currency correlations. For example, If EURUSD is DOWN at the moment, USDCHF will most likely to go UP. Therefore, you can BUY USDCHF if you think EURUSD will go down.
In the screenshot above, both the 1-hr chart of EURUSD and 1-hr chart of USDCHF was taken at the same exact time. While the EURUSD pair is in UPTREND, the USDCHF pair is in DOWNTREND. This is a classic example of how to day trade using Currency Correlation.
Many experienced traders like me have developed proprietary indicators to find tradeable pairs.
Tools And Trading Platforms
Day trading is like establishing any other business, you require a few and essential tools to start. You also need a broker and an order execution platform. These are tools you will definitely need for yourself.
Unlike in Stocks where you need to purchase “Watchlists” and “Scanners” or something as a separate tool. Fortunately, for us Forex traders, all reputable Forex Brokers offer some kind of trading platform for free. Some Forex brokers provide MetaTrader 4 terminal while others provide CTrader or both.
It’s very common these days that most if not all Forex brokers offer trading platforms to be installed in your Windows computer, or you can log in directly to a Web Browser and trade, and you can use your Smartphones to trade while in mobile.
What Forex Broker to Use?
If you have a terrible broker, you lose money, even if you are trading correctly and accurately, because your broker eventually has to fill your order on time and at a reasonable price.
There are many forex brokers out there with various software and price structures. Many of them are great but expensive, some are terrible but cheap, and many of them are either terrible or costly or both.
To make this article short, I will not start reviewing all of them, but instead, I will share with your what broker I am using and why.
Quick Facts About FxPro
Fxpro is my forex broker of choice. When I started trading forex way back in 2008, I have demo accounts from almost all Forex brokers I see online. Every time I see advertisements online, I clicked on the ads and open a demo and live account, deposited money just so I can test the service.
And so I have a demo and live accounts in almost all Forex brokers there is online including FxPro. But I dropped them all and settled with FxPro. Why?
Because other brokers I tried have horrible support. Others have high entry deposit fees, and others have bad reviews about support, and most importantly, many clients are whining about withdrawals and all sorts of scams. And the remaining brokers I tried went out of business already.
So I stick with FxPro because first of all, the entry level is low. For as little as $100, you can start trading. Also, their support is outstanding. When I have issues, I just chat with them, and they instantly reply.
When some things cannot be discussed via live chat, they refer me to email their support, and I typically got my reply within 30mins or so. Most importantly, I don’t have issues with regards to withdrawals with Fxpro.
Community of Traders
Trading alone is tough and can be emotionally overwhelming. To whom will you ask your questions? It is better to join a community of forex traders so you can ask questions and chat to them, learn new methods and strategies, get some hints and alerts about the Forex market, and also make your own contributions. Online trading rooms, facebook groups, and group chats are excellent places for meeting like-minded traders, and they can be powerful learning tools.
Day Trading Strategies
Successful Day Trading
If a picture is worth a thousand words, how much is a video worth?
Watch the video below and see how I demonstrate using a LIVE ACCOUNT with REAL MONEY what successful day trading forex looks like.
Rules On Day Trading
- Day trading is not a strategy to get rich quickly.
- Day trading is not easy. It is a serious business, and you should treat it as such.
- Day traders do not hold positions past the New York Session Close. If necessary, you must close your open position or all your open positions with a loss just to make sure you do not hold until the next day session.
- Always ask, “Is this pair moving because the overall market is moving, or is it moving due to fundamental factor?”
- Success in day trading comes from risk management – finding low-risk entries with a high potential reward. The minimum win: loss ratio for me is 2:1.
- Your broker will buy and sell instruments for you at the Exchange through your trading platform. Your only job as a day trader is to manage risk. You cannot be a successful day trader without excellent risk management skills, even if you are the master of many effective strategies.
- Retail traders trade only highly volatile pairs that have fundamental catalysts and are being bought or sold regardless of the overall market condition.
- Experienced traders love to “Hit And Run”. They jump out at just the right time, take their profit, and get out.
- Indicators only indicate; they should not be allowed to dictate.
- Profitable trading does not involve emotion. If you are an emotional trader, you will lose your money.
Advice For Beginning Traders
Successful day trading is based on three important skills.
- You need to constantly analyze the Forex market to look for sentiments and align your day trades with the prevailing intra-day trend.
- You need to have strict money management rules and excellent risk management.
- And you need strict self-discipline and follow your trading plan to avoid getting overexcited and resist the temptation to make emotional decisions.
To become a consistently profitable trader you need to follow these guidelines before entering into the world of forex trading. Some of them you should do before and after each and every single trade you make:
- Education and demo trading
- Hard work
- Mentorship and a community of traders
- Reflection and review
I encourage you to read the best day trading books you can buy and find online or in-person courses on day trading.
Never start your day trading career with real money. Sign up with a forex broker that provides you with demo accounts with real market data.
Practice with the amounts of money that you will be trading in real life. It’s easy to open $100,000 in a demo account and watching lose half of its value in a matter of seconds. But could you tolerate this loss in a real account? Of course not.
Always demo trade with the trade size and position that you will be using in the real account. Otherwise, there is no point in demo trading.
Move only to a live account and use real money to trade after you are comfortable with your demo trading. Trade small using the minimum volume possible while you’re still learning to control your emotions.
If you want, you can always contact me via email or have a chat with me on facebook to get some advice and guidance.