CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.00% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Once an activity that was exclusively linked to banks and professional speculators, day trading gained immense popularity after the deregulation of commissions in the US in 1975 and the subsequent advent of electronic trading platforms. Day trading strategies, as the name suggests, involve buying and selling securities during the same day. All positions have to be closed before the market closes for the day. Currencies and associated derivatives are one of the most common day-traded financial instruments.
Day traders attempt to take advantage of frequent and small price movements, relying on in-depth technical analysis, with the use of various indicators, charts and patterns, to predict future price movements. They exit positions before the market closes to avoid any unnecessary risks associated with price gaps between the closing price of the day and the next day’s open price.
Regardless of whether they are used by experienced traders or beginners, day trading strategies need to fulfill some basic conditions to be successfully executed.
Here are some common forex day trading strategies used by pro traders:
Scalping is considered one of the most advanced day trading techniques, where the aim is to gain profits very quickly. Small price movements provide opportunities to trade in very short timeframes. Traders enter positions with timeframes less than 5 minutes.
Now, we know that currency prices move up and down by one or two pips, so how do these traders get decent returns on investments? They trade in mass quantities. Some trade approximately 200 times a day, in order to accumulate reasonable profits. The higher the number of trades, the greater the chances of evening out the low risk-reward ratio.
Chart analysis plays an important part in breakout strategies. If the price of a currency clears a specified price barrier on the chart, along with an increase in trade volume, volatility increases and there are greater chances of the price trending in the direction of a breakout. If the price breaks above the resistance line, a long position is indicated. On the other hand, if the price drops below the support line, a short position is signalled. Currencies with prices that often hit the support and resistance levels are good choices for this strategy.
Traders sell currency pairs immediately after the price rises. The aim is to try and find those market movements that are trying to restore the past price of a currency pair and earn pips on them. Buyers generally start to step in again at these points.
Fading the breakouts is a commonly-used strategy. One simply trades in the opposite direction of the breakout. This is usually done when traders have less confidence in the direction of the breakouts or believe that it is a false breakout.
A strong pivot-point strategy can help efficiently identify and act on price support and resistance levels. In order to identify a move as a breakout point, traders use pivot levels to identify the key levels. Profit is based on the daily price volatility of currency pairs. While buying and selling is reserved for low volatility periods, positions are closed during the high period of the day.
Central Pivot Point (P) = (High + Low + Close) / 3
Using the central pivot point, the support (S1 and S2) and resistance (R1 and R2) levels can be calculated.
R1 = PX2 – low; while S1= PX2 – high
R2 = P + (R1-S1); while S2 = P – (R1-S1)
Day trading strategies should be tried after sufficient experience in long-term forex strategies. The higher consistency one can achieve over the long term, the greater will be the skills acquired for trading shorter timeframes. Many traders prefer to use a demo account to practice before venturing into the live markets. Retail day traders have a habit of fixing the maximum losses per day at a level they can bear to take on mentally and financially.
