A quick guide to day trading forex and scalping
Day traders are traders that use a set of strategies requiring them to open and close a trade or even multiple trades within the same day. This is HARD WORK, it often requires you to sit in front of your screen for extended periods of time through the session.
Is it for you?
In day trading, given that the time frame is so short, there is little room for error. This means it is more essential than ever that you stick to your trading plan and your trading rules. Mistakes on these shorter time frames can be costlier, especially because these errors could also happen very frequently, given the frequency of trading. This in itself can have a very damaging impact on your profits. So, it is worth thinking hard whether this is the route you want to go down. Do you have the time? Are your personality traits akin with this type of trading?
Volatility refers to the size of market movements. It is impossible to make any gains from a sideways moving market. And less so when you are trying to make multiple gains in a day.
The need for high volatility suddenly means that the number of markets available for you to trade has decreased significantly. Also, be aware that each pair will also have varying volatility depending on the session. For example, GBP/USD will be quieter, with less liquidity during the Asian session, rather the London or New York Session.
Liquidity refers to the volume in the market. When there is good liquidity, the chances are you will get a precise fill. However, when liquidity is lower, fills aren’t always spot on the order price. For day traders, a slip on a fill can make the difference between a successful trading day or not.
Therefore, when choosing forex pairs to trade, chose volatile pairs with good liquidity and know when in the session you can expect to have more or less liquidity.
Let’s take a brief look at one of the most popular day trading strategy, scalping
Scalping– this strategy looks to book profits on the smallest of prices changes. There is no time to do a proper analysis on each trade. Traders often scalp on a gut feeling that the trade will go up or down. Scalpers often trade many times in one minute, the idea being to make lots of little profits. High frequency trading is needed to balance out the small reward from each trade. And most importantly you must have a tight risk management system otherwise one loss can wipe out all the smaller profits.
Execution speed is essential for this strategy so its important that you think carefully about which forex broker you will use. Slow execution and you’ve missed your opportunity. Using a true ECN broker meaning that its pricing, spreads and execution are second to none. Whilst there are some brokers, which don’t like their clients scalping,look for a renowned forex broker, which encourages its clients to use the trading strategy which bests suits them, the client.