3 Key Strategies For The Forex Day Trader
Many Forex traders are thrilled by the prospect of intraday trading. Intraday trading refers to the strategy of opening and closing trades on the same day. While the Forex market is volatile, there is only so much it can move in one day. Therefore, Forex day traders have to take risks in order to make any real profit.
The risks come in, not because of dodgy tactics, but because within this micro context, sticking to the "rules" becomes all the more important. Every mistake can be costly, and since you're doing so much within a single day, they can build up quickly.
If you're interested in intraday trading, these are the most important day trading strategies you need to know about.
1. Scalping
Before we get into what scalping is, we need to discuss volatility and liquidity.
Volatility is necessary to make Forex (and CFD) trading worthwhile, whether you're trading over one day or one month. But it is all the more important with intraday trading. This is because trades need to move significantly within that day for any real impact to be felt.
Liquidity refers to a currency's ability to be bought and sold with no discount or premium. This is especially important with intraday trading, as it has to be so precise. The movements are small, but the stakes are big, and so the smallest difference can be significant.
Now let's get into scalping.
Scalping is a day trading strategy that takes advantage of small profits on minimal price changes. Scalping requires you to go for quantity, in order for the rewards to be felt. But this also requires a sharp eye for losing trades, as closing a trade on time can be the difference between profits and heavy losses.
Scalping is not for everyone, but if you can meet the challenges, it can be hugely profitable for you.
2. Reverse trading
We only mention reverse trading in order to discourage it. It is known by many to be the worst trading strategy, and when used by beginners it is almost certain to fail. With reverse trading, you're trading against the trend. It therefore requires a huge amount of market knowledge, as well as a lot of luck.
3. Momentum trading
Momentum trading is as simple as it sounds. It involves looking for trends, and getting on board with the current momentum. The tricky part is knowing when to close a trade. This requires a lot of discipline, as it's easy to get caught up in a trade's momentum.
Conclusion
Forex day trading is not for everyone. If you have the guts as well as the discipline to try, you can make huge profits. But if you're risk averse, or you know that you can be a bit too impulsive, you may want to give this one a miss.
