As 2019 starts with a bullish Wall Street, and strategists predict a slumping dollar and an unpredictable currency market, are you thinking of setting new goals for your Forex trading?
As a rule of thumb, day trading does not suit everyone. Some might even say that it’s gambling and not really investing. However, day trading needs constant analysis and is based on trends and not just chance. You are looking short term and for currencies that might move up or down throughout a day. The FX market might appear calm, but there will be no shortage of volatility in your day trading portfolio.
The Importance Of Trends
Trends can make or break profit for any day trader. You will be carefully observing these trends and movements to decide whether to sell or buy a position. Your reaction will be instant and take place in just minutes or hours, so you are really becoming a short-term speculator. Day traders may make multiple trades in any single day and end each day with no positions open in order not to take potential overnight risks.
Done correctly, Forex day trading is not a “get rich quick” scheme. It is a conservative approach to investing and is used by numerous top institutions, alongside traders who use it as a profession. Due to the volatility, making wrong decisions can potentially lead to significant losses, so is it actually a smart investment move?
Day Trader Essentials
As a day trader, you will need to fully understand technical analysis and have access to the latest sophisticated tools. Being able to interpret charts, patterns, price movements and trading volume is a prerequisite and is only a small part of the knowledge you will need to develop your personal trading plan and style.
It’s also critical to understand that day trading will require enough money to take the most advantage of small movements in price. Only investing small amounts will produce minute gains, which may not even cover any trading commissions incurred. Before you consider this form of trading, ask yourself these critical questions:
- Do you like starting and ending your trades on the same day?
- Would you like to know if you have won or lost as each day ends?
- Do you have the free time to analyse and monitor the markets?
- Are you ready to commit significant funds to your trading?
Getting Started In Day Trading
It can be overwhelming to think about the fast pace and aggressive strategies that can be required, so getting started will require some basic essentials. You will need the best software and platform to help develop simple and proven strategies and methodologies. Be aware that it will be a steep learning curve and you will need application and patience until you gain in confidence.
When just starting out, you will need to learn how to trade and minimise your losses. Expect that you will lose some money until you are fully proficient and focus on learning all about day trading and understanding when to cut losses. Successful traders learn something from each trade as they all differ from each other and analysing “risk and reward” is a must.
Proven Tips For Beginners
- Look out for imbalanced demand and supply to pinpoint entry points.
- Always set day trading price targets before entering a trade.
- Limit the risk to reward ratio to 3:1 for your day trading targets.
- Only trade with allocated funds and never risk high amounts on a single trade.
- Review daily and learn from your experiences.
Day Trading Is A Business
Forex day trading should always be viewed as a business. It needs a plan and a budget which includes extra money for essential training courses and technical analysis tools. Using demo accounts and simulators can help with the basics, so plan to use these for several months until you are achieving a small profit on your simulated trades.
Day trading as your business also requires discipline and the ability to trade during the same hours each day consistently. Prime hours are known to be the first two of the opening market and the last hour before it closes. Along with this comes preparation and reviews each day and week. This is a big time commitment, so if you are limited, you will need to develop a strategy and skills to overcome this.
Forex day trading is not for the casual investor, so expect solid practice and an inconsistent income when you first start out.