You’ve heard about investing in the stock market and mutual funds. You know how important it is to find investments that match up with your risk tolerance and make you money at the same time. And you also know how thrilling it can be to educate yourself on investing and then growing your money and building your wealth. After all, you’re looking to be fully secure when you retire, and not have to worry about the amount of funds in your bank account. You’re motivated to get ahead.
One of the ways you can invest and make a healthy amount of money is through forex day trading. Though you’re not exactly sure what it entails, you are excited to learn about it, because you know that many others have had success with forex day trading strategies.
If you’re ready to learn more about trading forex, keep reading.
What Is Forex Day Trading?
Forex day trading involves the buying and selling of currencies at current or determined prices in a single day on the foreign market, also known as forex.
Getting into forex day trading is simple because you do not need to have a huge amount of money in your trading account like you would with day trading securities. For only $300, you can open up your forex account and start trading. However, it’s recommended that you have at least $1,000 to invest with to open up a mini account.
Forex day traders make profits when there are small price changes among highly liquid currencies. Trades are not seeking out large price movements, but instead, they are looking at the small movements. They hope to make money on a number of small price movements per day rather than one large investment.
Forex day trading strategies are ways in which forex traders can determine whether or not they will purchase or sell a currency pair at any given point. Forex day trading strategies can be based upon things like news-based events or technical analysis. Forex strategies also involve using trading signals that will trigger buying or selling decisions. There are numerous forex day trading strategies online, or traders can figure out their own signature strategies that work for them.
Using forex day trading strategies is important because, in day trading, you can’t rely on your feelings when you’re trading. You need to make informative decisions based on technical analysis and proven patterns. If you trade based on your “gut” or your feelings, you are likely to lose money. That’s because you may tend to get emotional when you lose money, and you may double down on a bad trade. Maybe you’ll get too confident after a good trade and start taking riskier moves, completely throwing risk management out the window. Both of these situations could lead to you losing a lot of money.
The day trading success rate is about 6 to 8%. If you really want to succeed with forex day trading, you need to follow forex strategies that are proven and are going to pay out big. If you study and employ these forex day trading strategies, you may have a chance to stand out as one of the top day traders as well as turn a new hobby into a full-fledged, thriving career.
1. Start with a Practice Account
Before you jump into the real thing, test out your forex day trading strategies and skills by starting with a practice account. A practice account allows you to participate in a simulated forex market with fake money. You can see which forex day trading strategies work best and how you’d react in any given situation. Perhaps you’ll discover that you get very flustered when you lose money and start making bad trades, or maybe you find out that you are a very logical trader and can predict small price movements that will pay out well. The only way to know for sure is to test yourself with a practice account. You can sign up for a practice account on Forex.com and see what it would be like to begin trading forex for real.
2. Look at Small Price Changes in Different Directions
As you know, day traders make money when there are small price movements they can take advantage of. One of the ways to stay on top of this is to look for price changes in different directions. Look out for levels that pushed a currency’s price back in the other direction several times. For instance, a price may rally and go up to $30.10, and then fall. It might do this many times and not be able to push through the level. The price may test that area more than three times, and then suddenly break through and reach $30.11. That signals that the price may be about to go up. Always look at how prices are trending and if you see currencies trying to break through to the next level.
3. Be Proactive, Rather than Reactive
One of the most critical forex day trading strategies is to always be proactive instead of reactive. But what exactly does that mean? When you’re proactive, you’re following forex day trading strategies, using technical analysis, following the news, looking at charts and using proven tactics to make wise trading decisions. When you’re being reactive, you’re not doing your research thoroughly and instead trading based on your emotions. You’re not looking at what the currencies are going to do in the future or trying to spot patterns; instead, you’re reacting to how they are performing in the present. Always be on the offense, not the defense, when you’re trading, if you want to be successful with it.
4. Trade on Momentum
Trading on momentum is one of the more basic forex day trading strategies that anyone can grasp. It involves strong price moves that are paired up with high volumes and trading based on the direction of the move. You have to look for the best opportunity to enter a trade, and then be able to maintain it and know when exactly to exit through signaling before you lose money. It requires a high level of trading discipline in order to do well.
With this type of strategy, you’ll trade based on the news or by finding strong trend moves that are also backed up by high volumes. When the volume starts to decrease, you’ll see bearish candles on a trading chart. Your goal is to snag an asset right before any sort of news about it breaks, and then sell it off once the market has moved an adequate amount in your direction.
You might also set up a stop loss. Setting up a stop loss level will allow you to sell a security when it reaches a particular price in a volatile market, ultimately allowing you more control in your overall trading approach.
5. Use Stop-Losses
Another one of the top forex day trading strategies is to use a stop-loss when trading. A stop-loss is an order to sell a currency at a specified price so that you limit your loss. So, for example, you could specify to sell a currency once it dips below $7 because you’d lose money if it went down that low.
A stop-loss is important especially if you are using margin to trade because you are very vulnerable to big jumps in price movements. Risk management is possible when you are using stop-losses because you can control how much money you lose even if there is a sharp drop.
Many who are trading forex will employ two stop-losses. There will be a physical stop-loss order when it gets to a certain price level, which will be the most amount of money you can afford to lose. Then, you’ll come up with a mental stop-loss, which will be placed at the point where your entry criteria are being breached. If your trade makes a turn for the worse, you can get out quickly.
6. Utilize Scalping
One of the more popular forex day trading strategies is scalping. Scalping involves capitalizing on minute price changes, and your goal is to sell as soon as the trade starts becoming profitable. It is one of the riskier ways to trade because it is so fast moving. It’s important to have a high trading probability to balance out the low risk vs. reward ratio. You also need to be aware of volatile instruments and attractive liquidity. You always have to get out of losing trades as soon as possible as well.
7. Try Reversals
Once you become a seasoned forex day trader, you may want to start using reversals as one of your forex day trading strategies. Reversals are also called trend trading, a mean reversion strategy, and pull back trending. You are trading against the trend with reversals. You have to be able to see possible pullbacks and know how strong they are going to be. You may have heard of the daily pivot strategy, which is a type of reversal trading. With the daily pivot, you buy and sell the daily low and high pullbacks or reverse.
8. Follow the News
Since many forex day trading strategies rely on what’s going on around the world, you need to stay on top of the news when you’re trading forex. There are a number of websites dedicated to foreign exchange news including FXStreet, CNBC, and Reuters. Along with following specific news on the foreign exchange, read the global news in general on sites like The Wall Street Journal and CNN. Get used to reading the headlines every day when you wake up. Set up alerts on your phone so you can see when breaking news hits. Being a successful forex day trader involves always educating yourself and being “in the know.” Keeping up with the news is a great way to do just that.
9. Learn More About Forex Day Trading Strategies with The 10-Minute Millionaire
Another one of the best forex day trading strategies is to follow the advice of forex day trading experts. New York Times bestselling author D.R. Barton, Jr. is one of them. D.R. runs The 10-Minute Millionaire, a subscription-based day trading strategy newsletter that comes right to your inbox and informs you about the latest trading tips and news as well as trades and investments you should get in on right away to build your wealth. In just a few minutes a day, you can start taking the proper steps to become a millionaire and achieve your financial dreams. If you’re ready to take your investing to the next level and winning big, sign up for The10-Minute Millionaire today.