Forex day trading is a short-term trading strategy that focuses on the buying and selling of currency pairs within the same trading day. Typically, traders will place a number of forex trades per day, and close them out at the end of the trading day, rather than holding overnight positions. The price fluctuations of liquid currency pairs can provide plenty of opportunities for day traders, so they will usually look for currency pairs that are highly liquid and volatile.
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What is forex day trading?
Forex day trading is a short-term strategy that is particularly popular among retail forex traders. It can be a quick way to see returns on an investment. Forex day trading is best suited to traders who have enough time to analyse the markets and monitor their trading charts throughout the day. Read our in-depth guide to day trading.
Forex day trading involves reacting to short-term fluctuations in the prices of currency pairs and therefore, this requires control, focus, discipline and the ability to stick to a trading strategy. Our trading platform offers a range of trading tools, such as technical indicators and drawing tools, in order to help traders devise potential entry and exit points for their trades.
Forex day trading strategies
It is important for traders to familiarise themselves with different trading strategies when it comes to the foreign exchange market. Typical forex trading strategies will involve some form of technical analysis, fundamental analysis, or a combination of the two. Forex day traders will use this analysis to help decide when to buy and sell currency pairs.
It can be the case that more than one strategy is needed for forex day trading. As market conditions vary on a day-to-day basis, traders should be prepared to adapt their strategy, such as during times of high market liquidity.
Forex news trading
Traders will want to stay up-to-date on the latest trading news releases in the short-term. Knowing what is going on in the markets can help traders prepare for potential trading decisions in advance, and to plan their trading goals and strategies at the start of the day. Central bank announcements, interest-rate changes and other data releases are all important economic indicators that can impact currency prices, so it is important to keep track of major economic announcements and news events as a day trader.
Another popular way traders approach forex day trading is through trend trading. This involves looking at longer-term charts to identify a trend. Once the overall trend is established, traders would look at a chart with a smaller timeframe for trends moving in the same direction. Our advanced trading platform has a number of indicators and drawing tools can be used to help traders determine trends. Learn how to identify and draw trendlines on our price charts.
Momentum trading is another popular approach to forex day trading. This approach looks for strong price movements paired with a high volume of trading in the direction of the move. Momentum trading involves being able to wait for the best opportunity to open a position. Traders could consider using our specialised momentum indicator to determine momentum within the forex market.
Breakout trading is a common strategy for forex day trading, which also involves waiting for big market moves. These big moves can be caused by things like changes in a country’s economic data. They can happen unexpectedly or after expected economic announcements. With breakout trading, a trader would wait for prices to break through significant price support and resistance levels, indicating the start of a trend. The trader would then open a position in the direction that they expect prices to move. Identifying and trading forex breakouts is an efficient strategy for those who keep up-to-date with economic and political news.
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Indicators for day trading forex
Understanding chart types and how to use technical indicators is fundamental for any forex day trading strategy. Day trading takes place over a short time period, so it is necessary to make quick decisions. Traders should be able to read charts efficiently and accurately so that this does not slow down their trading. The following technical indicators can be used on forex day trading charts:
Forex day trading rules
Forex day traders should know their order types well. This applies to both getting in and out of the markets. Orders are important as they can help traders determine when to open a trade and maximise potential profit, as well as close their trades to reduce losses. If a trader doesn’t know their order types well, this can slow down their trading, and ultimately cost them money. Read more about our execution and order types, including stop-losses, market orders and limit orders.
Traders should research a broker properly before trading with them as it is important to be aware of brokers who are not fully authorised and regulated by the country’s regulatory authority. All forex brokers are subject to certain regulation. In the UK, traders should check that their chosen broker is fully registered and authorised by the Financial Conduct Authority (FCA).
If you are looking to open an account with a broker, you should look for efficient and reliable forex day trading software. With this strategy, every second counts, therefore it is important that pricing is in real-time and that trades can be placed easily and efficiently.
How to start day trading forex
- Open a live account to start trading now or practise risk-free with virtual funds on our demo account.
- Choose your product between spread betting and CFD trading.
- Research the forex market and consult our day trading guide for tips and strategies on how to succeed.
- Brush up on your knowledge of technical analysis by studying price charts and technical indicators.
- Use risk-management tools such as stop-loss orders in order to protect your capital.
Is forex day trading profitable?
Forex day trading can be profitable if trades are successful and the trader is patient and focused on analysing price charts and economic data. However, there are also numerous risks involved with this short-term strategy.
Risks involved in forex day trading mainly include a substantial loss of capital. It is generally acknowledged that trading in narrow timeframes can expose the trader to more risks. Plus, trading currency pairs on forex margin, such as with spread bets or CFD trades, can expose the trader to more risk. Margin trading requires a smaller investment, which gives traders leverage to more substantial trading volumes. The risks are greater as well, however, as the trader could end up losing more than their deposit if prices move in the opposite direction.
Unexpected news events can also cause volatility in the forex markets. During volatile market conditions, aggressive use of leverage could result in substantial losses. It is good practice to limit the amount of risk you are exposed to on each trade. For example, you could risk only one per cent of your overall trading account balance on each trade.
It is important to bear in mind, however, that stop-loss orders do not guarantee that your position will be closed out at the price you set. During volatile market conditions, prices can move from one level to another. Sometimes they skip the level in between. This is known as slippage. In this case, stop losses could execute at a worse level than what had been set, causing larger losses. Some brokers will offer what are known as guaranteed stop-loss orders in order to prevent this. For a small cost, they are guaranteed to close out your trade at the price set. These are all things to consider when opening a forex day trading account.
Forex day trading platform
Register with us to explore the UK’s best day trading platform*, Next Generation. We offer a wide range of technical indicators, chart types and draw tools, as well as exclusive features for live account holders, such as a forex trading forum and live market data.
Forex day trading is often seen as a way to make a quick return on your investments, however, it is not suitable for everyone. There are certain things you should consider before engaging in this type of trading. As with any trading strategy, forex day trading has its risks. When trading products such as spread bets or CFDs, traders use leverage. An overly aggressive use of leverage, combined with volatile currency pairs in day trading environment, could lead to large losses. Forex day traders should ensure that they implement risk-management tools such as stop-loss orders to minimise losses.
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Guide to Profitable Forex Day Trading
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