Trading financial instruments is becoming increasingly popular. You can find traders in all shapes and sizes. There are intraday traders that open and close positions within a day. There are position and swing traders that take longer. And there are investors who wait for years for the investments to pay out. In addition, there are many techniques traders use to grow their trading balance. Some prefer using trading algorithms and automated trading, some spend more time on fundamental analysis while others prioritize technical trading. The vast diversity tells us that there’s no single way to make money in the market. However, all of them are very hard to find.
Even when you learn and copy trading style and strategies from a successful trader, there’s no guarantee that you will make money. You can give the same strategy to 10 different traders and all of them will have different results. Trading strategies to work, they need to fit our personality. Are you a morning person, or do you prefer trading during evenings? Do you have quick fingers, or are you better at making plans? There are many more similar questions to be answered to find the strategy that can work for you.
The best way to approach trading is to learn as much as you can about different trading strategies and test the ones that make the most sense to you to see what works for you. We’re covering the best Forex day trading strategies in this guide.
Day trading in stocks and in Forex are two different things. Forex markets are open 24/5, while stocks are available during certain trading sessions that take much shorter time. There are developed many day trading strategies for fx trading. Before discussing them, let’s talk about the benefits and drawbacks of day trading.
Benefits of intraday trading
No swaps – Swaps are interests charged for keeping positions open overnight. While it’s true that the amount looks tiny, swaps can add up and become significant after many trades. Intraday traders are not charged with any swaps.
You won’t feel bored – intraday trading compared to swing trading, position trading and investing is more active form of investing. As traders are waiting for trading opportunities daily and actively manage open orders.
Use of margin – intraday traders need less capital to start trading compared to investing long term.
More learning potential – Trading daily shortens learning curve for novice traders. Day traders spend more time in front of their computer screens than any other type of traders. When starting the trading journey, the more time you spend in the process of trading, the faster you’ll learn how markets work. Trading the best forex day trading strategies requires spending quality time in front of charts and economic calendars.
Drawbacks of Intraday trading
Day trading has many benefits, however, there are some drawbacks that need to be discussed.
Increased market noise – Trading shorter time frames increases market noise and makes trading certain patterns and strategies less predictable. The shorter the timeframe, the less predictable the strategies are. Many Forex trading strategies for day traders fail to work in 1 min or 5 min timeframes. Market noise is referred to unpredictable price action caused by opening and closing trading orders. Let’s say a central bank increased interest rates. It means that the money supply will decrease and the value of the currency will increase. Even if the price moves according to that prediction, if you change a timeframe and place orders on 1 min chart, you might find yourself on a wrong end of the trade. Shorter timeframes are actively traded by trading algorithms that calculate everything in superhuman level.
Risk of overtrading – while it’s true that intraday traders get more trading opportunities, they spend more time in front of screens and when markets are not giving the best trading signals, they might start overtrading. Overtrading always ends in losing money.
Requires more screen time –intraday traders spend more time in front of screens as trades need managing and trading opportunities need to be located. More screen time is positive when learning how to trade, however, it might become challenging for experienced traders.
Top FX day trading strategies
News trading strategy
We cannot avoid news trading when talking about the best Forex day trading strategies. However, keep in mind that news trading is for seasoned traders. News trading requires good preparation, ability to change and make decisions in a fast pace and in some occasions, quick fingers. Economic announcements such as interest rate decisions, CPI, unemployment numbers, trade deficits, etc. can greatly influence the asset prices. During announcements, volatility increases. You might think that an announcement that is good for a currency will increase its value right away, however, this is not the case. It often happens that traders open orders in the opposite direction to their active longer term orders before news announcements to hedge their risks. During the announcements, many orders are closed and opened simultaneously that makes the predictions difficult. Fundamental traders, that base their decisions on news, wait for the storm to ease and open trades when the direction is clear. Technical traders avoid trading news announcements.
Traders that trade the news, are generally using 1-min timeframes and have quick fingers to catch the volatile moves. Usually, news traders use various order types depending on the situation. Buy Stop, Sell Stop, Buy Limit and Sell Limit come handy when trading news.
News trading strategy assumes that when news is announced, price will jump in any direction. Trader places 2 orders simultaneously to catch the jump immediately. Buy Stop and Sell Stop order types are made for that very purpose. It often happens that the price jumps into one direction sharply and then starts retracing. Retracement and moving in a different direction can happen just as fast. It’s important to include Stop Loss orders when placing Buy Stop and Sell Stop orders to avoid losing profits. Trades can be closed manually or automatically using a trailing stop. Trailing stop locks in profits and helps maximize profits when price is trending, however, trailing stop might reduce profit potential when used in volatile conditions.
End-of-day trading strategy
When talking about the best Forex day trading strategies for beginners, it’s worth mentioning End-of-day strategy. Forex markets are open 24 hours a day, 5 days a week. Forex trading is decentralized, which means that you can buy and sell currency pairs during various trading sessions. Which in turn makes 24 hour trading possible. However, not all markets are active. Some trading hours, such as London and New York trading sessions are more liquid than Sydney and Tokyo.
Many traders wait for main trading sessions to find general trading direction and join later. End-of-day trading strategies are developed to trade closing major trading sessions. During London trading session, trends develop. Traders observe these trends and speculate on trend continuations and reversals.
One more fx day trading strategies example is scalping. Scalpers try to take the advantage of price swings. The difference between scalpers and swingers is that scalpers are using shorter timeframes. Usually anywhere from 5 mins to an hour charts. However, many traders use the scalping technics on 1 min timeframes as well. Scalping is one of the most popular forex day trading strategies for beginners. The strategy can be coupled with various trading indicators. If markets are trending, you can use moving averages or trendlines to scalp. For better quality trades, traders typically avoid placing against trend directions when scalping.
Let’s check an FX day trading strategies example in scalping. Let’s say markets are uptrending and price gets closer to the trendline. Price fails to break the trendline and starts changing the direction, scalpers open long positions. They trade in the trend direction. If the price follows the prediction and reaches a certain point, traders sell when price starts retracing back.
Trend trading strategy
Trend trading is one of the best Forex day trading strategies for beginners. When following a trend, probabilities are on your side. Some professional traders are very successful trading pullbacks and reversals, however, trading against trend require experience and good market assessment skills.
Trend following strategies are simple and traders usually use simple trendlines and moving average indicators.
Prices do not change in straight lines. In order for asset prices to change from A to B, valuation goes up and down repeatedly. Prices are moving like waves on the chart.
In the fx day trading strategies example, a trend trader waits the price to test and fail to breach trendline support. We get an entry signal. A stop loss order can be placed right below the trendline. According to the strategy, it’s recommended to ride the trend for maximizing the profits and close an order once trendline breakout happens.
In this case, the stop loss order can be moved up every time price tests the trendline and retraces back. You’ll be able to lock in profits and protect yourself from sudden price drops that way.
In addition, trends are often traded using moving average indicators. Moving averages take into account recent price movements as well as past performance. When trading using the moving average indicators, instead of support and resistance trendlines, the indicator lines work as significant lines.
Intraday range traders are usually trading local ranges that appear below 1 hour timeframes. Range trading is highly popular, yet very simple. The idea is to buy a currency pair from a horizontal support level and sell at resistance. Or vice versa. Remember, when trading CFDs, you can profit from trading both bullish and bearish markets.
Similarly to the trend trading, range trading can be done using simple trendlines (in this case they are horizontal lines), and oscillating indicators.
After locating significant levels that are respected by the price, you can place horizontal trendlines. It’s important to note that round numbers can create significant levels in trading. Round numbers create psychological levels in trading. If you are wondering what this term even means, it’s easy to explain. Round numbers are simply price points that end with 00, 25, 50, and 75. For example, in EUR/USD price at 1.0200 is a round number.
When trading ranges using trendlines. Traders buy currency pairs when price tests and fails to break support, and sell when price reaches and fails to break resistance. Stop Loss orders are placed right outside the significant levels. What’s great about trading ranges is that you get a clear idea about risk to reward ratios. In the case of trend trading, risks are usually obvious, but not the rewards. In trends trading, take profit targets often depend on how the price will behave and how strong the trends are.
Range trading using oscillator indicators is also simple. Stochastic oscillator is the most popular oscillator for range trading, and it shows overbought and oversold conditions. When an asset is overbought, the chances are that the price will reverse and traders get sell signals. When assets are oversold, traders get buy signals. It’s important to note that the oscillator to work, it’s important the market conditions to be suitable. Oscillators fail to produce signals in trending markets.
Position trading is typically for trading larger timeframes, however, it can be done intraday. Typically, intraday traders place multiple trades. As a result, the success rate for each trade is lower than well calculated trades. Position traders are approaching intraday trading as if it was a larger timeframe. They are trading certain setups and patterns. Position traders are highly picky and avoid low quality trades. As a result, position day traders might spend the whole day in front of their computer screens and never place any order. Position trading requires a high degree of discipline. Feeling bored can lead to overtrading and devastating results.
Some traders tend to revenge trade after losing money trading. If you find yourself in this category, position trading might be the best for you. Position traders take more calculated risks. Yes, they have less trading opportunities, but their trades have much better success rates.
One of the top FX day trading strategies is breakout trading strategy. As we’ve already mentioned, when prices are in trends and ranges, they tend to respect certain significant levels. When these significant levels are tested and breached, we have a breakout. Some intraday raiders do trade breakouts successfully, however, it needs an experience. The difficult part is telling false breakouts from the real ones. Often price breaks a certain level momentarily, kicks traders out of active positions and retraces back. In order to avoid false breakouts, traders wait for a candle to close outside trendline. On some occasions, traders even wait for one more candle to close, called a confirmation candle, to make sure that the breakout is real. Stop Loss order is usually placed behind a broken trendline. Take Profit target depends on the situation.
Why do simple trading strategies work?
Sometimes the top fx day trading strategies are simple. However, they work for some traders perfectly. The reason behind is that many traders avoid placing orders against trends, ranges, patterns or other trading strategies. In this regard, the most popular strategies become a self-fulfilling prophecy.
We’ve discussed multiple trading strategies, and it’s important to avoid using all of them at the same time. When traders are using too many indicators, too many chart patterns and styles, they might fail to make trading decisions. In trading, this phenomenon is called analysis paralysis.
Often, one strategy might be telling you to buy, while at the same time, a trading indicator might be bearish and decision-making becomes highly difficult. The key to success is typically in simplicity.
One more reason why these strategies tend to work for some traders is that they give great risk to reward ratios. Most patterns, trading strategies and indicators enable traders to place much shorter Stop Loss orders than potential profit targets. Most traders avoid risking more than potential for rewards. It’s recommended to have 1 risk and higher than 1 reward ratio in order to progress. Another important topic to consider is the success rate. Some patterns and trading strategies have better probability of price going to a predicted direction than others.
Challenges of day trading and how to avoid them
Even the best Forex day trading strategies are useless when traders are not disciplined. Beginner traders lose money trading because they do not have developed trading strategies that best suit their personality yet. In general, beginners have a lot to learn and work. When the strategies are developed, the main challenge is consistency. A high level of disciple is essential for trading consistently profitably.
Having a discipline is critical to guard your trades against harmful human emotions such as greed, fear, hope, revenge trading and laziness.
Another essential aspect of day trading is that it takes a lot of time and energy. It’s not recommended to day-trade if you have a 9 to 5 job. Placing orders when feeling tired from your day job is a bad idea as it can influence your decision-making. You can swing trade or position trade when you have a busy schedule.
Having the best Forex day trading strategies, proper time and discipline is not enough to successfully day-trade. Trading requires an upfront investment. While it’s true that day trading CFDs require the least starting capital and most brokers offer very low barriers to entry, to make money, you need to have money to invest.
When a trader is using a small account, sitting and waiting for the best trading opportunities to arrive become challenging. Are you really going to sit in front of a screen all day to make 10 USD? Most likely, you’re going to over trade and lose everything. Which is why testing trading strategies using demo or small live accounts is great, but they are not for making money.
One more important thing to consider when day trading is risk management. Your trading strategy needs to give you a trading edge, which is a mathematical advantage that helps you gradually increase your trading balance over multiple trades. When you are using an edge, the more you trade, the more money you make. However, risk management is essential in this process. Proper risk management enables to spread out risks and single trades become irrelevant. Most professional traders risk up to 1-5% of their trading capital per trade. This number is even lower for intraday traders, as day traders are generally placing more orders. If you are a high-frequency trader, your risks need to be much smaller per trade than a position trader’s risks.
The main takeaways
To sum everything up, day trading is a preferred way of trading by most novice traders. There are multiple day trading strategies for fx trading to choose from. However, it’s best to test them to find out what works best for you. Day trading comes with certain pros and cons. Day traders do not pay swaps, are busy trading, require less upfront capital and get more learning potential. On the downside, day traders experience more market noise, they are more prone to overtrading and spend more hours in front of the screen searching for trading opportunities and managing trades. Some top fx day trading strategies include: News trading strategy, End-of-day trading strategy, Scalping, Trend trading strategy, Range trading, Position trading, Breakout strategy. For it strategies to work properly, it’s important the market conditions to be suitable. Moving average indicators work in trends, however, they fail in ranges. While oscillators work in ranges and fail to produce signals in trends. There are various challenges to overcome in order to become a successful day trader. It’s critical to have a trading strategy with an edge, time, funds, discipline and risk management in place.
FAQs on Forex day trading strategies
Can you start day trading with $100?
Yes. Most brokers require less than 100 USD initial investments for account opening. In general, trading using a small account or a demo account is a great idea and is mainly for testing trading strategies. However, keep in mind that the amount is too small for making a lot of money from trading Forex pairs. To make money, traders need meaningful starting capital. The exact amount is relative and depends on a situation. For instance, a 5k USD account for a millionaire trader is too small, while it can be a good start for a trader that places orders from his/her parent’s basement.
Is Forex day trading a good idea?
It depends on your personality. Some people make day trading work, while others that are good at analyzing fundamental events such as trade deficits, employment numbers, etc. prefer position trading and swing trading. The best way to know if using day trading strategies for forex is for you is to demo trade or live trade using a small account.
Can you day trade for a living?
Yes. Many people do make a living trading intraday. However, keep in mind that income from trading is not the same as getting a paycheck at the end of every month. Retail trading is like running a business, and there are some months without any profits. It’s always wise to have saved up upfront and have your entire budget planned in advance. When traders are dependent on their results, they tend to over trade and lose money when markets are not giving any trading opportunities. You should be trading when the opportunity presents itself, not out of necessity.
What are the alternatives to day trading?
The alternatives of day trading are: position trading, swing trading, investing. Position traders take more time and energy to enter a single position. They aim to enter higher quality trades than other traders. Which means that they have less trading positions and the positions usually take more than a day to be concluded. Swing traders try to take the advantage of market moves on higher timeframes. Swing trades typically last anywhere from 2-3 days to a couple of weeks or even months. Investing is another alternative to day trading. However, it’s far from speculating. Investors are generally investing in physical stocks and physical precious metals. Which means that when markets are bearish, they are losing money. Investors wait for years for the investments to bear fruit.
How not to lose money day trading?
Many day traders do lose money and blow up their trading accounts. The reason is that most novice traders tend to choose day trading over swing trading or investing. Inexperienced traders fall victim to taking high risks, and small profits. To avoid losing money day trading, it’s important to only place trading orders that are worth entering. Overtrading, revenge trading, greed and other human emotions is not easy, but achievable.