Before I begin to give you day trading basics, I would like to clarify what day trading is, and what it’s not. Because it seems like quite a few novice traders mistake day trading for trading using daily charts. For a start, day trading is not a strategy. Day trading is in fact a way of trading when a trader trades within business hours only and always exists all positions at the end of each day. Often daytrader analyzes the market ahead of time in the morning, and then opens positions when the new business day starts, and then closes his or her positions towards the end of this day.
In FOREX day trading, the normal day profit is about 60 – 120 pips, the typical day loss is between -15 and -30 pips, and the average quantity of trades is 1 for a trend strategy and around 2 – 3 in case of a flat strategy. Day traders American traders usually, wake up quite early in the morning way before working day starts, so they could benefit from the active European trading session, and also have sufficient time for technical analysis; they in most cases close all open positions at the end of the day with a profit or loss. In cases where market moves against an open position, it must be closed by stop loss and no more trading is conducted in this day.
However, if trader anticipates a flat market in the upcoming business hours, he may trade inside the channel 2 – 3 times by 30 – 50 pips on average.
All daytrading strategies are similar and all currency trading forex are similar. All of it begins with technical analysis, then all required positions are open, and at the end of the day every open position is closed with profit or loss. Daytrading strategies only differ in how price movements are predicted, how stop-losses are determined and what currency pairs are chosen. There may well also be a difference in how profitable and loosing positions are closed by different traders.
Daytrading differs form investing, it is a lot closer to speculation. This is the reason why daytraders rarely keep their positions open more than 8 hours. They have to complete a day with a profit or loss at any cost. Needless to say, there are some exceptions, and sometimes traders do keep their positions open for a few days, and they choose to do it for two reasons. In case a very strong price movement happens, there’s a chance the market is going to move in the same direction for a few days, meaning that it really is better to continue to be open in order to get the most out of the price movement. Trader stupidness and bad behavior will be the second reason. When a trader opens a position and the market moves against it, this trader may get rid of stop loss order and leave the position open for a few days until market turns around and the position can be closed without a loss. Many of these so called traders all of the sudden turn into investors, and many of them finish up shedding their deposits. Avoid joining them at any cost. Accept your -20 pip loss and earn +80 pips profit following day. You’ll certainly be safer this way.
In my Day Trading Basics I also want to mention a distinctive kind of day trading strategies. Any strategy that considers trading within business hours of a day only and mandates a trader to close all open positions by the end of the day may be referred to as a day strategy, no matter how many trades may take place. Strategies that involve loads of tiny transaction are often called scalping strategies. A trader using this sort of strategy rarely keeps any positions open for longer than 10 minutes, and constantly takes 5 – 10 pips profit or loss, and always closes his / her day with a profit between 10 – 300 pips. Such a trading demands an extensive concentration and specialized tools which help a trader to open and close required positions by using a click of a single button. Scalping is extremely stressful for regular folks and beginner traders, and usually is not recommended at the beginning.
To conclude what I’ve just said, I want to share with you my simple yet proven day trading strategy.
- Proven with EURUSD pair, and 2% of deposit a trade (calculate lot size depending on the leveraging of your FX account).
- Carry out technical analysis at about 7:00am EST, and determine the direction the market will probably move over the upcoming business hours.
- By 8:00am it’ll be clear in which direction the pair is moving to, therefore open a position.
- Place your stop-loss order to the previous extremum however, not more than -30 pips. From time to time you can spot that the market is quickly bouncing inside of a channel in the morning hours, and if it’s the condition, hold back until channel is broken, and after that enter the market placing stop-loss order to -30 pips.
- Remember to install a take-profit order with +120 pips target which is equal to the average daily range of EURUSD pair. In case a significant movement develops, your large take profit order will likely be executed.
- Close your position as soon as market flats out or towards the end of the day at about 4:00pm.