Thanks to the recent booming popularity of cryptocurrencies, NFTs, and Metaverse, there are more fresh enthusiasts embarking on trading than ever before. Not only the crypto-market but other financial markets are benefiting from this movement as well, such as the forex market.
The temptation of making quick money on financial markets without leaving their comfortable house and being on the daily commute to workplaces has led many new investors to fantasize about making a living by day trading. With the incredible progress from modern information technology allowing traders to get their hands on trading applications, it is now easier than ever to become a day trader.
But is it that easy when it comes to forex day trading for beginners to start making consistent flows of trading income from the forex market and what is day trading forex? Let’s find out!
What is Forex Day Trading?
Forex day trading is basically a combination of forex trading and day trading, referring to the act of doing day trading on the forex market for profits by using short-term strategies. Let’s dive deeper into the definition of each concept.
What is Forex Trading?
Foreign Exchange, forex for short, refers to the process of transferring currency within a network of buys and sellers or changing one currency to another for a variety of reasons, including tourism, business, or trading.
While forex trading is carried out broadly in multiple other industries for many different reasons, the most significant part of it is still done for only one ultimate purpose: making profits from trading. With a daily trading volume of $6.6 trillion recorded in 2019, the forex market is, without doubt, the biggest financial market in the world, even surpassing the stock market.
What is Day Trading?
Day trading is a common approach and strategy to make money in the trading world, referring to the process of buying and selling certain financial assets on the same business day, thus generating small but consistent flows of profits.
Often regarded as the most beginner-friendly method of trading, day trading indeed offers significant benefits: small profits adding up to huge returns while laying comfortably on your back, enjoying independence, and reaping the gains from your decisions.
What Makes Forex Day Trading Attractive?
The forex market usually has strong movements in responding to breaking news all over the world, making the prices of some currencies rather volatile. Its sensitiveness and high volatility pose an irresistible attraction to day traders despite the lurking risk.
Unlike financial markets such as the stock or the commodity market, forex trading occurs directly between two parties in an over-the-counter (OTC) way rather than on real-life physical exchanges and can be carried out 24 hours a day due to the lack of a central location. The forex market is managed by a global network of banks located in four major forex trading hubs in different time zones: London, New York, Sydney, and Tokyo – the best time of the day for forex day trading depends on your desired time zone and location.
Since day traders will certainly close their positions before the close of the market, they won’t be exposed to the risk of holding a position overnight.
Regarded as the most beginner-friendly market, the forex market grants traders ease of entry thanks to its low costs, low capital requirements, and high liquidity. Traders can start trading without making a remarkable impact on the prices, and execute trades as they are easily filled even in a large number of orders while eliminating any significant possibility of price manipulation from big names.
Choosing The Right Pair for Day Trading
When it comes to forex day trading, there are indeed some pairs that just outshine others. However, to understand and decide which ones to invest in, the mere observation based on the size of the spread is not that practical.
To make the most out of the high volatility for making profits, forex day traders must actively keep track of the state of the market, as well as the current events around the world to spot the potential opportunities in time. Below are some “exotic” pairs with high volatility – considered the best forex pairs for day trading – that are not the common stable pairs for your consideration:
- AUD/JPY (average volatility – 1.12%);
- AUD/USD (average volatility – 1.07%);
- EUR/AUD (average volatility – 1.07%);
- NZD/JPY (average volatility – 1.05%);
- GBP/AUD (average volatility – 1.05%);
- GBP/NZD (average volatility – 1.05%).
Choosing The Right Strategy for Day Trading
Forex day trading strategies can be both technical and non-technical. It is highly recommended that traders remain adaptable when applying the following strategies to constantly changing market conditions:
As a day trader, you must have heard this saying at least once in your life: “the trend is your friend”. Favored among novice traders, these strategies involve a straightforward approach as you try to join and look for trading opportunities hidden in the current trend of the markets.
When you spot the trend, the rest is that easy: making a prediction for a positive trend to enter your trades and having enough discipline to close your position for ensuring profits.
Hot and impactful news are your best friends as a day trader, allowing you to make significant profits if you proceed to make your trades just as the events unfold.
In modern days, thanks to progressive developments in information technology, it is no difficulty to find numerous private and exclusive communities of professional traders available who can provide you with trading services and signals of potentially profitable trades with a considerable amount of commission. Execute or not? The rest is entirely up to you.
Social trading is a strategy in which investors observe the trading behavior of their peers and expert traders. The primary goal is to replicate their investment strategies through copy trading or mirror trading.
Somewhat similar to the trend trading strategy, the counter-trend trading strategy involves the process of spotting the possible end of the trend as well as the change in the movement, thus taking advantage of the price fluctuations.
As a result, this strategy requires an eye for patterns, many years of experience, and the capability to utilize technical analysis for predictions with higher probability. Seasoned forex day traders who want to try out this strategy usually make use of demo accounts as their trading simulators where they can set up and practice the strategy without interfering much with their actual accounts.
Mistakes to Avoid When Doing Forex Day Trading
No achievement comes easy. You will certainly make mistakes when doing forex day trading. Then, only learning from them without giving up will take your trading game to the next level and one step closer to your dreamed profits. Check out the most common mistakes when doing forex day trading:
- Not keeping up with the news: the secret of making phenomenal forex trading profit per day lies entirely in how quickly you receive and deal with the breaking news that is impactful to the market. If you are not well-updated with the latest information and data, it will be a hard time to make even the most simple decisions.
- Not spending time enough to monitor your trades: some fresh traders just try to ride the trend but leave their positions unobserved, when they first enter the market in hope of making some money. This act will make your trades exposed to countless risks and leave you with not enough information to execute your trades.
- Not disciplined enough: when you catch an uptrend, it is relatively easy to give up early and make an exit for your trades. It can be considered a safe way for guaranteed returns. However, this process eliminates entirely the potential of how much your positions can yield and just shows that you clearly have no strategy to base on to make the most out of the situation.
- Having another tough day job: being a day trader means being there and making trades in response to the fluctuating movements of the market. While having another day job sounds like an obvious way to make money besides trading, it actually can be harmful as you won’t have enough time to keep yourself well-updated with the news, monitor the current situation of your trades, let alone do further technical analysis. Being a day trader should be your full-time job.
Making money from forex day trading is indeed not an easy road. The forex market has its own pros, cons, and signature features for your consideration when choosing a financial market to invest in, choosing the right pairs, and the right time frames, as well as the right strategies to utilize.
Only when knowing all the fundamentals and essentials, can you make the right decisions and not get drowned out by the overwhelming information from the market. It does not mean you use complicated technology strategies or even the best indicators for forex day trading, you are more likely to be successful than anyone who does not. Remember to concentrate on your day trading goal: making profits one little step at a time, and achievements will be sure to follow.