Day trade is another short-term style of trade, but unlike speculation, it usually only performs one operation a day and closes it when the day ends. These operators like to choose a side at the beginning of the day, act according to their bias and then end the day with gains or losses. They do NOT like to keep their operations overnight. Daily trading is suitable for Forex traders who have enough time during the day to analyze, execute and monitor a trade. If you think scalping is too fast, but swing swap is a bit slow for your liking, then day trading may be for you.
You might be a forex day trader if:
- You like beginning and ending a trade within one day.
- You have time to analyze the markets at the beginning of the day and can monitor it throughout the day.
- You like to know whether or not you win or lose at the end of the day.
You might NOT be a forex day trader if:
- You like longer or shorter term trading.
- You don’t have time to analyze the markets and monitor it throughout the day.
- You have a day job.
Some things to consider if you decide to day trade:
Stay informed on the latest fundamentals events to help you choose a direction
You will want to keep yourself up-to-date on the latest economic news so that you can make your trading decisions at the beginning of the day.
Do you have time to monitor your trade?
If you have a full-time job, consider how you will manage your time between your work and trading. Basically….don’t get fired from your job because you are always looking at your charts!
Types of day trading
Trend trading is when you look at a longer time frame chart and determine a general trend.
Once the general trend is established, move on to a smaller time frame chart and look for business opportunities in the direction of that trend.
The use of indicators in the shortest time frame will give you an idea of when to time your entries. For an example of this negotiation style, see the world-renowned Cowabunga system of Pip Surfer.
First, determine what the general trend is by observing a longer time frame.
You can use indicators to help confirm the trend.
Once you determine the overall trend, you can then move to a smaller timeframe and look for entries in the same direction.
Countertrend day trading is similar to trend trading except that once you determine your overall trend, you look for trades in the opposite direction.
The idea here is to find the end of a trend and get in early when the trend reverses. This is a little riskier but can have huge payoffs.
In this example, we see that there was a long and exhausted downtrend on the 4hr chart. This gives us. an indication that the market may be ready for a reversal.
Since our thinking is “counter-trend”, we would look for trades in the opposite direction of the overall trend on a smaller timeframe such as a 15-minute chart.
Remember that going opposite of the trend is very risky, but if timed correctly, can have huge rewards!
Breakout day trading is when you look at the range a pair has made during certain hours of the day and then placing trades on either side, hoping to catch a breakout in either direction.
This is particularly effective when a pair has been a tight range because it is usually an indication that the pair is about to make a big move.
Your goal here is to set yourself up so that when the move takes place you are ready to catch the wave!
In breakout trading, you determine a range where support and resistance have been holding strongly.
Once you do, you can set entry points above and below your breakout levels.
As a rule of thumb you want to target the same amount of pips that makes up your determined range.