Intraday Forex Trading
Forex intraday trading can be very profitable. The foreign exchange market is the most liquid and volatile market in the world and therefore offers good opportunities for intraday trading. Regardless of which market you choose to trade intraday, you must be aware of the individual characteristics of the market you are trading in. Each market has its own characteristics and it is important to know them before trying to profit from it. In this sense, the Forex market is no different. In this article, we will walk through the most important general principles of day trading and then see what a trader should consider when trading intraday Forex.
As the term “intraday trading” implies, traders, in this case, are interested in what happens in the market today, not tomorrow, not next week or next month. The goal of the intraday trader is to capture the price swings throughout the day. Depending on the system or trading method used, this could mean capturing one intraday swing or different intraday swings. The general aspects of day trading can be broken down into the following components:
This is one of the most important aspects as the day trader must control his exposure to risk. Of course, such an aspect as risk management should be used in any type of trading, however, in intraday trading, a trader should consider this issue from a slightly different point of view. Since the task of the intraday trader is to capture the various price swings during the day, the profit targets will naturally be much smaller than, for example, swing trading. Thus, when placing multiple trades throughout the day, it can be easy to “drift” away from your predefined groan order. Very often, intraday traders think that if they expand their stop level a little, the market will reverse and give them the opportunity to exit without loss. Hope is one of the main enemies of the trader. These small extensions to stop levels subtly degrade your risk to reward ratio.
This aspect is key for any type of trading but is especially important when trading throughout the day. If I were asked to name the only aspect of day trading that can make a significant difference between positive and negative results, I would call discipline. You can have a very mediocre trading system, but still, make money if you are disciplined in its execution. However, you may have the best trading system in the world and will continue to lose money if you are not disciplined in your trading. So what is the discipline that is so often talked about when discussing trading in the financial markets? It's very simple to strictly follow all your trading plans, your trading system, and your money management rules.
It is so easy to deviate from your trading plan, the rules of your trading system, or any of the aforementioned components, especially when trading intraday. There are two reasons for this. Firstly, because during intraday trading, deals are often made, and the trader does not have time to cool down, think, and assess the situation. Second, because reality is often replaced by hope. The rules of your trading system (reality) say “get out of the market” hope says, “hold the position still, it may become profitable.” Money management rules (reality) say “risk only 2% of your account on this trade” hope says “since I lost on the last trade, I risk 4% on the next so that I can make up for the losses and still win.”
Market volatility and liquidity
Since the goal of intraday trading is to capture short-term fluctuations, it is critical that the market being traded has enough movement to allow it to do so. It is also important that the market you are trading in has sufficient liquidity so that your order execution does not suffer from excessive slippage. Market volatility should be constant and not occur from time to time. Since the trader bases his trading method on capturing intraday swings, he must know that he is trading in the right place. Since volatility is crucial for the intraday trader, he must be sure that he can count on it every day (or at least on most days). Liquid markets provide good execution. Since the day trader is aiming for smaller profit targets, therefore, more slippage will eat up most of the profit. When trading several times a day, this is compounded and can become the determining factor between successful and unsuccessful trading results.
How can you apply in the Forex market all the above numerical rules and principles of intraday trading, as well as others, take into account other parameters that are unique to the foreign exchange markets?
The Forex market works around the clock, except on weekends. During these 24 hours, different currencies behave differently. When trading throughout the day, it is very important to know the individual characteristics of the currency you are trading. For example, the GBP / USD rate is more volatile in the first half of the European session than any other liquid currency pair. In this regard, it is quite logical to take advantage of the fluctuations in the GBP / USD rate instead of trading any other currency pair that does not show any movement. The USD / CAD pair is behaving relatively calmly in the first part of the European session but begins to make more significant movements in the American session. Also, before the release of important economic data, most, if not all, currency pairs are holding in a very narrow price range. Therefore,
Since volatility is an indispensable attribute for intraday trading, it is important to clearly understand its criteria. The basic definition of volatility is simply the amount of price change over a given period of time. Volatile currency pairs have different price fluctuations (price changes) over a short period of time (one day). These price fluctuations are of primary interest to the intraday trader. In the Forex market, volatility is often correlated with liquidity. Most liquid pairs are the most volatile. Major currency pairs such as EUR / USD, GBP / USD, USD / JPY, and USD / CHF are the most liquid and provide the best volatility and therefore the opportunity for intraday trading. Of these four pairs, GBP / USD is the most volatile. although not the most liquid (the most liquid EUR / USD). This pair, with a small spread most brokers give 3 pips, can provide many profitable intraday trading opportunities.
An intraday currency trader should be familiar with more than just the basic rules, skills, and principles of intraday trading. His trading should take into account the individual characteristics of the Forex market. Remember, each currency pair can represent different opportunities, and the purpose of intraday trading is to focus on the best ones.
Output: Day trading is a special trading method
Day trading is definitely an opportunity to enter the markets professionally. However, you should not take this topic lightly. It can take several years before one trades profitably. We can tell you that it doesn't work without your own efforts.
You can still have the best method for the markets in front of you, but you must practice it constantly and figure out how the market behaves at certain points. You can make money from the simplest things on the market. However, trading is not only about the right strategy.
Our top tips for beginners:
- Risk Management: Without proper risk management, you will lose money very quickly. In trading, only a small part of your account balance should be risky.
- Psychology: Many beginners feel fearful or greedy. There is no place for this in the market at all. The market is not interested in how you feel. Trade with strict rules.
- Trading strategy: Any method can work when used in the right context. Trading takes many hours of practice. 90 traders are losing capital in the market and this is not without reason. Most traders enter the stock market with too high expectations. From my experience, you have to start very small in the stock market and then increase your investment or capital over time.