There are lots of successful forex trading strategies in the world and day trading strategy is one of them. The concept of day trading strategy is to accomplish all the trading activity within the day or trading session.
The best thing about day trading is that it does not require you to keep any position open overnight, which is reliable and perfect for full-time traders.
The involvement of retail traders in the forex market has increased since the financial recession in 2008. Later on, technology has been improved and people started to trade from home in front of a laptop or computer. Currently, there are a lot of traders in the world who are considering trading activity for a living.
Let’s see the details about what day trading is.
Day Trading Forex Strategy
Day trading means closing all the trading activity within the day, whether it comes with profit or loss. Most of the day traders are full-time traders and institutional traders. They do their trading activities like the office. Therefore, it is suitable for those who are looking for the forex market as a full-time source of income.
As a day trader, you’ll set your trading hours and you can be your boss. An outstanding life, huh? For many traders, the concept of no boss, no paycheck, and no benefits is terrifying.
A disciplined trader could make consistent profits from day trading. However, this can not be suitable for all traders. In case you are incapable, keep yourself ready to monitor the whole market day, and stay away from day trading.
The main challenge for day trading is that it might not be profitable every day. Markets move on the pass, and plenty of days traders often find themselves in this market volatility and risk management.
For day trading, it is vital to identify the significant forex market time. In the London and New York session, most of the banks around the Eurozone and the USA remain open. Therefore, traders may see substantial price movements during this time.
If you are in the forex market for more than a year and you have established a trading strategy that suits you to go for full-time trading, you can start day trading.
Let’s have a look at a day trading strategy that is profitable for every trader. In the following section, we will see a day trading strategy based on the London and New York time frame as most of the traders in the world and banks opened during that time.
Simple Day Trading Strategy in the Forex Market
Forex Day Trading Strategy that we are going to see is based on a moving-average based indicator with market context. The moving average tends to fan out in a trending market environment creating a possible opportunity that is easy to identify. As pullbacks are minor returns in the opposite direction, the area inside moving averages works as a prime area for price to pullback. Later on, after the pullback, the price may continue the trend depending on the strength of the trend or, it will resume the initial direction. This makes the day trading strategy identify entry areas during London and New York sessions. Another important thing is that most of the banks and big investors remain open at that time. Therefore, good liquidity is available in the market for solid momentum.
- 200 SMA
- 50 EMA
Any pair but major would be good.
Only in London or New York session
Long Trade Setup Rules
- Identify market direction based on market context and Confirm an Asian Session break towards the direction of market context.
- Set the 50 EMA and 200 SMA.
- Wait for the price to come back to the 50 EMA and show a rejection.
- Enter a buy market order as the candle closes back above the 50 EMA.
Bonus: Understand Top Candlestick Patterns for Day Trading
- Set the stop loss below the entry candle with 10 pips buffer.
- Close the trade as soon as the market reaches any near-term resistance level and shows some weakness.
Short Trade Setup Rules
- Identify market direction based on market context and confirm an Asian Session break towards the direction of market context.
- Set the 50 EMA and 200 SMA
- Wait for the price to come back the 50 EMA and show a rejection
- Enter the sell market order as the candle closes back below the 50 EMA
- Set the stop loss above the entry candle with 10 pips buffer.
- Close the trade as soon as the market reaches any near-term support level and shows some weakness.
Further Aspect of Day Trading Strategy
As forex trading is associated with some risk, you should follow strong risk management skills to minimize the overall risk on your balance.
- Invest the money that you are ready to lose.
- Do not take more than 2% risk per trade.
- Consider trades that have 1:2 risk: reward only.
As we mentioned earlier, the best thing about day trading is that it does not require keeping any position open overnight, which is reliable and perfect for full-time traders. Therefore, this trading strategy would be effective if you are a full-time trader. However, the forex market is associated with a lot of risks so you should use trade management skills to minimize the loss that may appear from uncertain market behavior.
Read more: Explore 21 Advanced Forex Trading Strategies.
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