One of the reasons why people are attracted to forex trading is because it offers quick returns. Investing in stocks and shares is a long game.
You may have to wait months or even years to realize a decent return. Forex is a very different animal. You can open a market position and then close within a day, making a profit in the process. In this article, we are going to take a closer look at day trading and discuss some strategies that will boost your chances of making money.
How Does Day Trading Work?
Forex is one of the most volatile markets inthe world. More than $5 trillion is traded each day. Day trading capitalizes on small fluctuations in the forex market. Opening and closing a position on the same day lets you take advantage of this volatility, without being exposed to potential losses that might occur overnight, when the markets are closed. To become a day trader, all you need to do is open a trading account with a forex broker. Once you have an account on an MT4 platform, it’s time to try out some day trading strategies.
Always Set Limits
Discipline is crucial when day trading. It is very easy to get sucked into a vortex of excitement when it appears Lady Luck is on your side and the stars are aligned in your favor. Inexperienced day traders often open a position with their preferred forex broker and then get carried away when it looks like they could make a huge profit. They up their trading amount and sit back waiting for the money to roll into their account. Then the market turns against them and it all goes south.
Setting limits protects you from huge losses. Don’t exceed your limits, even if you think you are on a winning streak. Have a budget and stick to it. Smart traders keep a cool head and don’t let their emotions dictate what they do.
Timing is Everything
Price movements tend to be bigger at the start of the day when the markets first open. This is when the markets respond to overnight news, both political and economic. Opening positions at this time ismore likely to generate a profit, but only if you understand the markets and have the latest news at your fingertips.
Make it your mission to follow the forex news and other relevant news stories. For example, if you trade GBP/USD, pay close attention to the latest Brexit news and announcements from the US Federal Reserve.
Understand the Markets
You have to understand the principles of supply and demand when trading forex. Look at historic market data and analyze how the markets reacted to major events. You should spot patterns, such as price dips or spikes during periods of political upheaval. Use this knowledge to your advantage, as it will help you make profitable trades.
Always have a strategy when day trading forex. Understand the markets, don’t let your emotions get the better of you, and set firm limits to minimize losses. Follow these tips and you can make day trading work for you.
