Day Trading the Forex Market

Day trading the forex market will suit well those traders that do not like to hold positions overnight. In fact, “short-term is noon” could aptly describe a day trader’s frame of mind. Basically, being a day trader, whether in forex or any other market, means that a trader does not take positions home with them.

Nevertheless, the forex market trades 24-hours a day, so a “day trader” in the forex market really only trades during a specific time frame, which usually encompasses the normal business hours in their time zone. Instead of looking at the big picture, the day trader focuses in on what takes place in the market on the day they trade, not tomorrow and not in a month, but just for that day.

Furthermore, since the forex market trades around the clock from the Sydney open on Sunday to the New York close on Friday, certain times may seem more advantageous for day traders than others, depending on the currency pairs involved. For example, the British Pound/U.S. Dollar exchange rate often sees several hours of higher volatility during London trading hours and at the start of New York’s trading hours.

Forex Broker Reviews

Markets

Bloombex

Forexyard

eToro

How Day Traders Trade

Typically, a day trader aims to take advantage of one or more intra-day swings in the market, usually getting in and out quickly. Depending on the forex trading system they use, the day trader will often try to capture one or more intraday swings.

Since day traders look to capitalize on small moves, the day trader needs volatility in the market to make their trading activities worthwhile. Fortunately, the forex market lends itself superbly to the needs of day traders and provides ample volatility in the major currency pairs, as well as in the more illiquid secondary currency markets.

Furthermore, day traders generally rely on technical analysis to determine optimum entry and exit points on price charts. The most commonly-used charts for a forex day trader are the five-minute, fifteen-minute and one-hour price charts. Of course, many day traders use a variety of other indicators depending on each individual trader’s strategy and trading plan.

The way that a day trader will decide on taking a trade usually involves a particular technical indicator or market signal that, once reached, will prompt the trader to take action. As in most effective trading plans, the day trader will optimally initiate a currency position with clear profit objectives and risk tolerance levels.

To implement this strategy, the trader will generally enter both a stop-loss order to limit their risk, as well as an order to liquidate at a profit once the market attains their objective. Naturally, they will need to cancel the other order once either level is reached, and can sometimes do this automatically with an OCO or one-cancels-the-other order type.

Who Day Trades?

Day trading will not be especially popular with the faint of heart, since the intra-day forex market swings can be stressful to some people. Nevertheless, they usually sleep well at night because they have closed out all of their trading positions.

Now that small accounts can be readily opened with online forex brokers, more and more personal forex traders find day trading to be a profitable pursuit