Day Trading Forex
One of the leading trading ideologies associated with forex is day trading. Day trading revolves around trading over the ultra short-term, with a view to making profits over a much shorter period of time. The general idea is that by trading more frequently but over the course of one trading day, traders can better respond to changing market dynamics and take advantage of short bursts of movement in either direction. For many, day trading with forex feels like the easiest, least risky strategy because capital is only exposed for a short time. While this is partially true, day trading also makes things more difficult, because there is less margin for error and because profits tend to be smaller (albeit more frequent).
What You’re Looking For
When it comes to spotting day trading opportunities, you need to be constantly on the lookout for a stream of new signals. Because your trading cycle is shortened to usually at most one trading day, the scope of the total profits you can see is limited by the time factor. That means you need to trade more frequently in order to compensate. Exactly how frequently is dependent on how short-term your research focus is, but as a general rule you need to trade on a more frequent basis to match the profits available from trading over a longer transaction cycle. Either way, when you are looking for trading signals, you need to be looking towards positions that are likely to shift over a short period of time, or at least positions that can provide enough of a shift once leverage is factored in to make the trade worthwhile.
Which Trader Does This Suit?
For the trader with time to spend and a cautious risk profile, day trading is probably the way to go. While it is true in many respects that day trading is less risky than trading over the longer-term, remember that the short-term timeframe is effectively a handicap against your trading performance. So, for more experienced traders who have a feel for how it all works, it’s perhaps not the most suitable strategy as far as generating a return is concerned. Nevertheless, with a bit of perseverance and hard work, it can be possible to derive a solid return from trading over the short-term, but you need to be prepared for the demands that come with trading across such a frequent cycle.
Strengths and Weaknesses
The main strength of day trading lies in its ability to make money from short-term opportunities. By keeping your capital exposure to the lowest possible amount of time, you can eliminate the risks of a market reversal while also cutting down on the costs of trading with such high degrees of leverage. However, it’s always worth bearing in mind that the smaller the cycle over which you trade your capital, the more work you’re going to have to do in order to get the same levels of return.
Day trading can be a productive strategy for traders concerned about their risk profile, but that doesn’t mean it is easy to execute. Don’t be fooled by the short-term outlook – you arguably need to invest even more legwork in order to make this viable on a profitable scale (not to mention the added burden of marginal trading costs).