A Brief Definition of Day Trading in the Foreign Exchange Markets
Day trading is seen as the act of buying and selling foreign currencies in one trading day. Day traders, also known as active traders, consist of those people who have some experience in trading and are typically well-educated on all the topics that concern the Foreign Exchange Markets.
In most cases, day traders choose to register with a regulated forex broker that offers high leverages and short-lived strategies to take advantage of opportunities where they can maximise profits online. Leverages is the amount of money a trader borrows from their broker. This money is used to invest in different markets, such as Forex, Commodities and even the Shares markets.
Beginners who are new to the concept of day trading should spend some time watching tutorials or reading up about the concept before starting to trade online. This will protect them from suffering unexpected losses and becoming discouraged after dedicating so much of their time and effort online.
What Are Day Trading Signals?
Advantages and Disadvantages of Day Trading
When you choose to become a day trader, you will have the opportunity to take advantage different price movements in the Foreign Exchange Markets during a period of one trading day. This means that you do not have to hold your trading position open throughout the course of the night and run the risk of big price changes that could influence your profits while you sleep.
Other advantages and disadvantages day traders can look forward to includes;
- Day traders have the opportunity to take complete control over their success in the Foreign Exchange Markets. As a day trader, you will have to work really hard to devise working strategies that will ensure profitable trades. Take time out to set daily targets for yourself, view analytical charts and other technical analysis tools to keep track of the movements occurring during your trading session.
- When you choose to become a day trader, you will never have to worry about falling stock prices or struggling markets. This is because day traders take advantage the fluctuating price movements by identifying market patterns and finding indicators of when would be the perfect time to trade.
- Since day traders only buy and sell during the course of one trading day, they often at time will miss out on any price gaps that occur overnight.
The Current Debate Around Day Trading as a Successful Career
The concept of day trading seems to be one of the most debatable topics in the financial markets. Most often, people claim that day traders are tricked into believing that they can make quick money online. This, however is not the case.
Day traders are well educated about on all that occurs in the Foreign Exchange Markets and just like any other trader, they come up with working plans that ensures profitable trades.
Risks of Day Trading
- lack of trading knowledge
Trading knowledge is one of the most powerful tools a trader can have. This involves understanding the basic principles and concepts of the financial markets.
Some people choose to day trade without having much knowledge about the markets or without knowing what the correct procedures are to follow online.
Without having the correct knowledgebase, a trader unknowingly becomes one of the biggest risks to themselves.
Should you choose to succeed as a day trader, it is important to start by understanding what is expected of you. This can be done by actively participating in forex courses, seminars, webinars and even reading eBooks on trading topics. Once a trader has all the necessary information needed, it would then be best to put that theory into practise by choosing to engage in trades online.
- The loss of capital
Capital loss is one of the biggest risks a day trader will have to face. Besides from the actual loss you could face while trading, day traders also run at a loss each and every time they purchase new software, pay commission fees or choose to invest in other services that need to be paid for online.
The best option would be to start out on a smaller scale and find opportunities in fewer stocks in the financial markets.
What is the best day trading strategy for beginners?
Scalping is one of the most popular day trading strategies used in the Forex market. This trading strategy takes advantage of small price gaps that are usually created after a trade has been executed.
Traders who make use of this strategy will make profits by buying and selling foreign currencies online. Scalping requires the trader to hold their position open for a short period of time before closing it for a small profit.
Some of the most popular ways in which day traders look for possible opportunities to maximize profits include;
- By looking at small price changes in the financial markets.
- Keeping up to date with the latest market news and trends that will activate any price movement.
Range trading deals with the fact that traders identify overbought or oversold areas in the markets.
A stop-loss order is an instruction to buy or sell once the markets have reached a certain point online. This order is usually given to broker that you use fore trading and holds the purpose of preventing losses during a trade.
Technical indicators can be defined as price and volume calculations that assist traders to identify trends and price movements that occur in the Foreign Exchange Markets.
All traders should look out for leading indicator and lagging indicators.
- A leading indicator are all those things that influence economic change. Leading indicators for day trading can be found with tools such as an economic calendar. This will assist traders to find out what important events are taking place in the economy and would it have any effect on price movements.
- Lagging indicators consists of all those signals that only become noticeable when there is big movement happening in the financial markets. These types of changes usually have a great effect on the market in which it occurs since changes the current market trend in a completely different direction.
Fading trading strategy
Fading is a strategy that requires a trader to place their bid against a prevalent trend, in the hopes of gaining a turnaround profit. This method is seen as a high-risk trading strategy because it goes against what is considered to be the norm in the financial markets.
Traders who practice fading would choose to invest when the markets are falling and start selling when prices are on the rise. This risky move is based around the traders hopes that the financial markets will compensate its losses once there is stronger movements online.
Momentum trading strategy
The Momentum trading strategy involves buying and selling assets in the financial markets. A trader who uses the momentum strategy would choose to sell their assets when its price has reached the highest point.
The main idea behind the system is that the market will place enough force on current price movements, thus causing the price to stay in the same direction as before.
Breakout trading strategy
The breakout trading strategy is used when prices tend to move slightly outside of their normal range.
A breakout trader would choose to enter the market when the stock price breaks out lower than its normal price range.
There are two types of breakouts that traders tend to look out for when using the strategy. These include;
When a trader identifies the support and resistance areas that are being used repeatedly, eventually a trader can expect a breakout to occur within that area. This is when he/she can use this strategy to take advantage of any opportunities where profits can be made.
- Swing high and swing low breakouts
Swing high and swing low indicators can reveal very important information to day traders that can be applied at any given time during their trading session.
Swing low is when price movements hit an ultimate low in the financial markets. Once price movements have hit their lowest points a trader can expect high swings to occur shortly after.
Some of the benefits of the breakout strategy include the fact that the trader would know almost immediately if their strategy worked or not since trading occurs in real time. This makes it easier for the trader to identify if he or she executed a profitable trade online
Using pivot points
A pivot point is one of the most common technical analysis tools / indicators that traders used in different time frames.
The pivot point is the average of the high and low-price movements in the Foreign Exchange Markets.
This indicate to the trader what would be the best area of opportunity to trade. There is a special formula which thread is used to calculate pivot points.
Creating Your Own Trading Strategies
During your trading career there would come a time where you would need to create your own working strategies to use online.
Once you have access to the technical analysis tools you will be able to formalize working strategies to use for trading purposes.
Pay close attention to price movements to find potential gaps in the market. It is at those gaps where traders usually find opportunities to make profits online.
Even though it is important to look for potential opportunity is it is equally important to identify areas to use as exit points.
Since the Foreign Exchange Markets are always evolving it is important to keep in mind that not all strategies work forever.
Day traders like to take advantage of the time when their strategy is working for them. As you fall into the pattern of entering and exiting sessions you find which strategy works best for you.
Factors to Considers When Choosing to Become a Day Trader
- Do you have the correct tools for trading?
Over the years trading in the foreign exchange market has become so technologically advanced that brokers are even keeping up with the latest software trends to provide their clients with the best user experience.
As a day trader in 2020, you would find that there are hundreds of dedicated software and platforms that are used for trading.
It is important to make sure that you have all the necessary equipment and tools to execute trades as quickly as possible. This will ultimately lead to profitable and successful trades online.
Day traders need to ensure that they use an electronic communication network (ECN) to keep away from paying high commission fees for each trade executed.
- Do you have enough capital to start trading daily?
The initial stages of trading can become very costly, especially if you are a day trading beginner that has no experience in the financial markets.
As a day trader, you will be working with multiple markets and products in one day. This could range between Forex, Indices, Precious Metals and even Stocks. For this reason, it is vital that day traders keep account of the funds they would have to invest before reaching a state of profit.
If you are a beginner trader, try to look for brokers who offer welcome bonuses to all their new clients. This will work out to your benefit since there is no minimum deposit involved. Diversit-e Smart Trade College has partnered with a FSCA regulated Broker that offers many different bonuses. Clients funds are also kept in a segregated account, meaning operational costs are kept separate from Clients’ funds.
No deposit bonuses require the broker to pay their new clients and amount of funds that should only be used for trading purposes. These funds are not allowed to be withdrawn from the trading account, but the profits incurred can be taken out by the trader after they have successfully completed a trade.
- How much time are you willing to invest?
Day traders usually spend countless hours trying to analyse the markets for the best time to invest. This requires a lot of patients and concentration from the trader should they want to find those short-term profit margins.
It is common to find that day traders spend time to come up with working strategies before they actually test it out in the Foreign Exchange Markets.
Before deciding to become a fully-fledged day trader, make sure that you understand that it will take a great amount of time before you see large profits online.
How to Choose the Best Broker for Day Trading
- Execution speed
- Trading platform
Make sure that the trading platform you choose caters for all your needs. Be sure to take time out to explore all the tools that the broker offers.
It is important to make sure you will receive the support you need. The level of customer cares a broker provides often makes or breaks the success of their traders online. At the time of publishing this article has Diversit-e Smart Trade College been proudly reviewed as the “Best Education and Support” company in our industry for almost 6-consecutive months.
- Regulations and safety of funds.
In terms of safety of funds, most brokerage companies keep their clients fund safely in a segregated account. The segregated account guarantees traders that the company will not use their funds should it suffer any financial loss.
- The markets and products the broker offers
Day traders tend to tap into different markets during their trading sessions. It is important that the broker you choose offers a wide range of products online. Some of the most common market products broker offer include Forex, Commodities, CFD’s and Cryptocurrencies.
Although the options you would be presented with may seem endless, it could be best for you to choose to invest in one market at a time. This will allow you to pay full attention to the activity taking place within that specific market and easily find opportunities to make profits online. Take time to research what would be the best market for you in terms of your lifestyle and goals you would want to achieve in the Foreign Exchange Markets.
Even though there is a lot of speculation around day trading and if it is in fact a profitable career, those traders who choose this path can look forward to benefiting from shorter trades and small profits online.
When you are deciding on whether to become a day trader keep in mind that day traders play an important role of keeping the financial markets liquid.
Allow yourself the freedom and invest quality time to do proper research to determine what day trading in forex and is, what it requires and if it is for you. Should you be interested to become a day trader, first take the initiative to find the best broker for you who will allow you to open a demo account online. The demo account option will allow you to practise trading in real time without having to invest any of your own personal funds into your account.