Best Practices of Forex Day Trading: Cut Your Losses to Minimum
If you can’t win the high leverage game of FX trading as a day trader, you may want to learn a few useful practices. They will save your balance from a complete drain. Usually, novices lose their capital in an attempt to make money quickly. Forex demands more effort than just mindless investing. But even the educated traders are not fully protected from occasional losses. The following guide will save you from the most common mistakes and will give a few useful tips to become a successful day trader in the FX market.
What makes the intraday trading special?
About 85% of beginners in the FX markets prefer intraday trading. This means a trader must open and then close all his or her orders/trades within the same day. Overnight trading is usually skipped by all means. Intraday trading is considered as one of the riskiest techniques because the volatile FX markets can move very far in 12 hours. However, very often such risk is rewarded by the quick profits. The narrower timeframes for trades, the more risks a trader has to face.
Also, day trading is more than other techniques relies on collaboration with brokers. For instance, AMarkets offers expert guidance to all beginners and experienced traders who want to improve their win/loss ratio in Forex day markets.
Otherwise, day trading is not much different from other FX techniques. However, there are a few peculiar and sometimes harsh rules that all intraday traders must learn before starting this interesting career.
Peculiar features of Forex day trading strategies
Liquidity and volatility are 2 major factors that must be taken into account if you are into day trading. Despite the chosen strategy, these key features simply can’t be missed. Surely, slippage and risk management are also important factors, short-term traders must fully comprehend the volatility and liquidity of FX markets.
That is why any intraday strategy must be very accurate. A short-term trader can’t lose even 5 pips because most of his or her trades are based on very small but quick profits. Solid volatility and rich liquidity along with the trader’s experience are the best assistants in FX daily trading. The set of instruments is quite limited but you have to use them all to achieve the best results possible.
How do day traders make money?
Another distinctive feature of day trading is the large leverage use when the profit is made by small price fluctuations among the highly liquid assets. Small movements are perfect for day traders, however, these guys prefer trading big, unlike the long-term traders who diversify their investments. The major goal of a day trader is to get as many pips within 12 hours as possible. Most profits are generated on both lows and highs of the picked currencies.
Below you may check a few useful tips by AMarkets on how to skip the major losses during your day trading escapade. Risk management is an inevitable part of a day trader’s routine.
The most effective practices for intraday trading in FX markets
Every experienced trader will laugh if you ask him or her about naming the best FX trading strategy. Because, despite the multiple strategies and systems out there, traders always search and alter the existing practices to gain more profits in the highly volatile markets. By the way, you must differentiate the definitions of FX trading systems and strategies:
- A system is basically your style of trading, for example, when you decide to become a day trader;
- A strategy is more about giving specific instructions and tips for specific systems of trading;
When being in symbiosis, strategies and systems grow into the practices shared among traders. Day traders in the FX markets also have a few quite effective practices:
- Scalping is probably one of the most popular day trading practices. Almost 90% of day traders follow different scalping methods. It is all about purchasing or selling immediately after the open trade gets to the level of profitability, even if there are only a few pips at stake. Yes, money can be quick but don’t expect high and long-term profits at this point;
- Fading is another common practice when day traders short the pair at once after upward movements. The target for the trade’s price is set when bulls (buyers) step in. Money is made from the pips when the market tries to recover the previous price of a traded asset;
- Daily pivoting is a popular practice based on the volatility of daily prices. Traders pick the lowest period of the day to open a trade. And then they are in a hurry to close all these trades at the highest period of the day market;
- Momentum. Most day traders who work with the AMarkets broker and similar huge companies recommend this practice. Day traders usually use the news or strong movements to define a current trend. But they pick the trend that is supported by high volumes. Their price target is when the volume gets lower and many bearish candles appear on the chart. Traders buy an asset a few hours before the news and then quickly sell when the market moves in this direction;
Picking the best time for a day trading session
One of the best things about trading in the FX markets is the absence of any central location. Forex market is a network of brokers, banks and traders who trade all over the world, practically without stops during a whole week. When you open a trade, be sure that the FX market is open somewhere in the world as well. For instance, Toronto and New York are open for trading from 8 AM to 5 PM (EST). London is ready for trading from 3 AM (EST). At 5 PM (EST) Sydney is open for business. Then comes Tokyo.
Commonly, a day trader picks the business hours for a session depending on the chosen currency pair. Don’t expect that Sydney markets will be good for trading something else than AUD (the Australian dollar) or JPY (Japanese Yen).
If you want to learn more about the best time sessions for intraday trading, check the tips given by AMarkets and their partners.
What mistakes to avoid in FX day trading?
Being a successful trader doesn’t just mean being a winner in 100% of trades. First of all, because it is impossible even if you are a “Forex Einstein”. Secondly, the trick is to be as effective as possible instead of just hoping for the win. Forex day trading is not a lottery or casino game, it is based on the analysis, effort and numerous hours of practice. So the best thing you can do is to avoid the most obvious mistakes that are common among the vast majority of novices:
- Skip averaging down – this practice is not for everyone, it makes easier to lose a profitable position. Also, this approach involves a larger return compared to other day trading strategies;
- Don’t fully rely on the news because you can’t predict the market’s reaction after the news release. Always use additional indicators and analysis to confirm the trend initiated by the certain news release;
- Never trade without a solid plan. Do not get tempted by the sudden news release and avoid chasing the temporary trends. Surely, this strategy can bring a few small pips but the risks of losing money are very high;
- Never risk more than 1% of your balance (trading capital) per single FX trade. Don’t jeopardize your chances of making money by risking too much. For instance, if you have a $10,000 account (leverage apart), it means you can’t afford to lose more than $100 per trading day. This number can change if you are on the winning side;
- Don’t expect too much. Follow your trading plan and avoid dreaming about getting the instant and huge profits within one day. It is not how the market works. Despite the common belief, trading is not a race but the long-term relationship you need to cherish;
4 important Forex day trading tips you can’t afford to ignore
Some FX trading tips are too good to skip. Rookie traders must understand that only the long-term practice will help to gain the necessary experience for the confident day trading career. Meanwhile, stick to the following useful tips shared by the profitable clients of AMarkets:
- There are no perfect indicators with a 100% success rate. But there are bad and good indicators, it is true. Check your broker’s list of indicators and test the top-rated ones;
- Risk management is a must-have. Consider how you can reduce your risks to a minimum. Yes, day trading is riskier than long-term strategies, but still, you should be completely aware of your risks and chances because the trading decisions must be made quickly;
- Learn more about stop-losses to manage your risks. Setting the maximum loss per day can really save you from draining the entire investment capital in a few weeks;
- MetaTrader 4 (sometimes MetaTrader 5) is still the best trading platform. Use the desktop version to open/close trades and the mobile app to monitor the charts. Make sure to watch an educational course provided by your broker or use YouTube to learn all useful features offered by MT4/MT5 platforms. Practice with demo accounts but do not be afraid to implement the new knowledge in live trading. Also, bear in mind that MT has a Supreme Edition to skyrocket the trading opportunities;
Forex day trading can delivery both confidence and despair. But don’t give up if lose, don’t get too cocky when you win and you will be just fine. Look for the expert guidance and use the above-mentioned practices to cut your losses to a minimum.
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