You need to understand what day trading is and what it isn’t prior to mastering the day trading basics. Since it looks like many beginners misidentify day trading for trading utilizing daily charts. Firstly, day trading is not a strategy. Daytrading is actually a method of trading when a trader trades within business hours only and always exists all positions at the end of every day. Often day trader analyzes the market ahead of time in the morning, and then opens positions once the new business day begins, and then closes his or her positions at the end of this day.
The typical profit of a daytrader is somewhere within 60 and 120 pips, and the usual loss isn’t exceeding -30 pips; per day trader normally does 1 – 3 trades according to the market conditions. Fx day trader typically determines the direction the market is going to move during the next business hours, after that opens up a Buy or a Sell position, which he / she closes towards the end of the day with some profit. When a position closes by a stop-loss order, day traders rarely reenter the market the day it takes place unless they are trading inside a channel.
The market can be in trend or in flat the day a trader decides to trade, in case it’s flat, the trader can make between 2 and 3 trades by 30 – 50 pips each opening positions towards the center of this channel.
All daytrading strategies are similar and all day trading basics are similar. You predict, and then you open a position, then take your profit and exit the market. The difference is only in how a certain trader projects the price movement, and what currency pairs she / he chooses. There may well also be a difference in how profitable and loosing positions are exited by various traders.
Daytrading is not investing. This is why day positions rarely stay alive more than 8 hours, and have to be closed by traders earlier than business day finishes. They should finish a day with a profit or loss no matter what. The ones who open positions as daytraders, in some cases leave them through the night for two reasons. When a quite strong price movement happens, there’s a likelihood the market will move in the same direction for several days, meaning it is better to stay open in order to get the most out of the movement. Trader stupidness and careless behavior will be the second reason. Some commonly beginner traders, after making a mistake refuse to take a planned loss, and remove the stop-loss order leaving the room for large movements against the open position, they usually keep this losing position for several days waiting until the market changes its direction giving a chance to close this losing position without loss. Many of these so named traders all of the sudden become investors, and the vast majority of them wind up blowing up their deposits. Avoid joining them at all costs. It’s far better to take a tiny -30 pip loss right now to earn triple of that another day. As a result, you adhere to your trading system, restrict your losses and allow profit to develop.
There is another type of day trading strategies I wish to discuss in my Day Trading Basics. To be clear, almost any strategy in which a trader trades within working hours of a single day and closes all open positions at the end of the day is usually referred to as a day strategy, even if a trader makes 20 – 50 trades each day. Day strategies using a large number of small trades on a daily basis are called scalping strategies. A trader utilizing such a strategy never leaves any positions open more than 10 minutes, and constantly gets away with 5 To 10 pips profit or loss, and always closes his or her day with a profit between 10 – 300 pips. This type of trading requires an extensive concentration as well as special software which help a trader to open and close required positions using a click of merely one button. For the majority of normal individuals it’s difficult while for some people it is exciting.
To summarize the things I’ve just said, I want to give you my simple yet proven day trading strategy.
- Select EURUSD currency pair and a lot that uses 2% of your deposit per trade.
- At the beginning of every morning at 7:00am EST check what european traders have done to EURUSD currency pair and notice where it began to move.
- Once market begins to move towards forecasted direction, open a position.
- Place your stop-loss order to the previous extremum yet not more than -30 pips. In case volatility is high in the morning hold back until the market busts the channel and enter at the break point placing stop loss order to -30 pips.
- Do not forget to include a take-profit order with +120 pips target that’s that corresponds to the average daily range of EURUSD pair. If a significant movement takes place, your large take profit order will likely be fulfilled.
- Hold back until market exhausts and flats out, then close your position by hand, or at the end of the day at 4:00pm EST.