Day trading may seem like an easy trading style on the surface, but when you finally decide to do it, only then do you get to know about the complexities involved with it. Day trading is rewarding no doubt, but you must have a good understanding of the market and currency pairs that you think can give good intraday movement. There are certain strategies that you need to follow in order to become a good day trader and that is what we’ll be discussing today, so sit back and read the entire post till the end.
What is day trading in forex?
Before sharing the tips for profitable day trading, I want to share some basic information about what day trading is all about and why it is a popular trading style. In day trading, you will be opening and closing several trades on a daily basis. The goal of day trading is to make small profits from the price fluctuations that happen in a day. A day trader does not take any overnight risk as they exit all their trade positions before the end of the day.
The size of the trades will be smaller for limiting the risk but day traders also utilise leverage for maximising their gains. But before placing the trades, you need to ensure that you have enough margin in your account. Those who have adequate capital along with a sound strategy and analytical skills can eventually make sufficient profits from day trading.
Now, let’s move on to the tips that can empower you as a day trader in the forex market.
- Be Consistent
It is easier to make profits in trading but making consistent profits is the real challenge for a day trader. In day trading, you will be investing a good amount of time monitoring the charts and planning your trades, but becoming profitable in the long run is not possible until you focus on being consistent. Instead of being fixated on the daily profit targets, you need to evaluate your performance for a longer period of time.
Your win rate, risk/reward ratio, account drawdown and more should be assessed to identify any shortcomings and correct your mistakes in time. Becoming consistent is not just about the amount of profits you make on a daily basis but it is also about staying true to your plan and working towards your long-term goals. The key to consistency is continuous learning and sticking to the techniques that work.
- Build Trading Discipline
The 2nd tip for day trading success is about following a disciplined approach without any deviation from your original strategy. Since day traders spend a lot of time looking for trading opportunities, they are more prone to entering random trades that do not align with their actual trading plan. This is what we refer to as impulsive trading and it leads to disappointing trading results in the end.
You need to follow the rules that you have set for yourself and commit to your goals. The urge to place more trades is natural when you encounter several losses in a row but not giving into these urges distinguishes a disciplined trader from others. This discipline can take you a long way in trading. Discipline and consistency go hand-in-hand and both these traits are vital for trading success.
- Logic Over Emotion
Consistency and discipline come from rational thinking and in order to remain focused on your goals, you will have to apply logic in every decision that you make as a trader. Those who are logical will always consider the consequences of their actions and will only make calculated moves. One thing you can do to make logical trading decisions is rely on technical analysis and calculations. When it comes to calculations, you need to consider the pip value of different currency pairs.
You need to use tools like pip calculators to identify the profit target and stop loss levels for your trades. Click here to use the pip calculator in your next trades. Because currency price movements are always measured in pips and when you know the pip value, you will be able to plan your trades with precision. Another thing to do for managing your emotions is learn about trading psychology and practise stress management techniques to stay calm in any situation.
- Set a Time for Trading
The 4th tip that all the day traders need to follow is sticking to a routine and setting the time for their trading hours. The forex market is open for 5 days a week and you can trade during any of the 4 major sessions that allow you to find trading opportunities throughout the day without any break. However, each trading session is different in terms of liquidity, volatility and tradable currency pairs. Hence, you need to choose the time for trading based on your own time zone and preferred currency pairs.
For instance, when you want to trade pairs including the Japanese Yen, the Tokyo session is the best time and when you want to trade the EUR/USD pair, the overlap of the New York and London sessions is preferred due to the high trading volume. When you trade during the active sessions, the spreads will be tighter and executing trades will be easier.
- Test and Try Different Indicators
Day traders always depend on technical analysis and you have to master chart reading for finding ideal trade setups. But while focusing on the price action, you should also use some reliable and simple indicators to confirm your analysis. Because trading with naked charts is not that easy and indicators help you to filter the information and make informed decisions after an in-depth analysis. Apart from this, you should also give a try to trading calculators to get fast and accurate trade-related values for placing trades more smartly.
One thing to keep in mind while adding indicators to your chart is that they should align with your strategy in a way that the analysis is simplified. Using too many indicators can add to the complexity of analysis and hence you should only use 2 or 3 indicators like Moving Averages, RSI, MACD or Fibonacci retracement levels. You can try out different indicators and choose the suitable ones.
Final Thoughts
In a nutshell, day trading in the forex market can be highly rewarding for those who can develop their skills and devote enough time to understand the market dynamics. Having a sound trading plan is the very first prerequisite for making profits as a trader but for being a successful day trader, you will have to develop two key traits: consistency and discipline.
You need to remain logical even when you get overwhelmed by the emotions that you experience during the trading process. You should avoid overtrading and only trade during fixed hours after picking the best sessions for trading. Lastly, depending on reliable indicators makes the market analysis easier and more efficient.