Forex Day Trading
As 2019 starts with a bullish Wall Street, maybe it is worth looking to the forex market for your investment wants. There are many different Forex trading strategies and in this article we will look into Forex day trading.
As a rule of thumb, day trading does not suit everyone. Be aware that it will be a steep learning curve and you will need application and patience until you gain in confidence. 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. You are looking at the 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. You will need the best software and platform to help develop simple and proven strategies and methodologies.
The Best Day Trading Brokers In Australia – 2019
- Markets.com – Go to Markets.com
- Avatrade – Go to Avatrade
- IronFX – Go to IronFX
- Plus500 – Go to Plus500
- Etoro – Go to Etoro
Best Day Trading Brokers – TOP 5
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.
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?
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.
The Benefits Of a Trading Journal When Day Trading
Are you wondering why it’s important to keep a trading journal when your broker already provides a record of all your trades?
Successful day traders learn something from each trade as they all differ from each other and analysing “risk and reward” is a must. That’s where a trading journal is of the utmost importance. It’s not an easy thing to do, and some traders relent and totally rely on their broker’s logs. However, your trading journal isn’t just about logging down the details of the trade. Its also about helping you to refine your methods and understand your psychology. It will record vital details about your emotions during the entire trading process. It will also show how disciplined you are, which is a good prediction of your future Forex success, and it also holds other personal benefits.
- Helps to define your character and life situation.
- Highlights your individual strengths and weaknesses.
- Monitors your progress towards goals in your trading plan.
- Details your personal ability to perform under pressure.
- Provides a method of self-coaching.
What Is A Trade Journal?
It may seem tedious and take time to complete, but Forex day traders often learn much more from it than from attending a training course or seminar. Taken seriously, your journal will continually develop and help you to recognise important facts like:
- Which news events are useful or should be avoided.
- How frequently you enter and exit trades.
- Which currency pairs perform well.
- Which timeframes produce the best profit percentages.
- If you need to risk more or less per trade.
- How well your system performs in different market conditions.
Who Uses A Forex Journal?
Any successful day trader keeps a trading journal if they want to be objective and if they treat their trading seriously. Forex day trading is no different from any other successful business. New traders can easily underestimate the value of accurate and meticulous records of trading activity and the emotions involved in taking profit or losses. The most useful effect of your journal is likely to be the assistance it can provide in making you change ingrained destructive habits into constructive ones.
Key Elements Required
Trading is a skill, whatever trading style you have and whichever method or system you use. Your outcomes are always determined by your market analysis and the ability to develop a trading plan and stick to it. There are multiple variables, so it makes sound sense to record everything and establish your strengths and weaknesses. Your trading journal should record all your actions and feelings before, during and after each trade.
- Your motivation for trading Forex – this is important when identifying your chosen trading method.
- Your philosophy and market views – understanding how you make your decisions and manage risk.
- Daily market observations – observing and identifying market movements and how you adapt to continuous changes.
- Spotting mistakes or missed opportunities – analysing entry and exits, timing and setups to avoid future mistakes.
- Performance statistics as hard data – this provides a realistic, accurate idea of how you are performing and a reality check.
The Bare Minimum Data
Your trading journal is your own design, but there are some essential items of data that should always be recorded about each individual trade.
- Date of entry and exit.
- The entry trigger.
- Time of the trade.
- Market conditions.
- Trade exchange rate.
- Trade entry/stops/targets.
- The target rate for the exit.
- Trade risk.
- Position size.
- Trade management rules.
- Results of the trade.
- Trade entry and exit remarks.
If you use more than one trading system, then set up a different journal for each methodology. Never mix them, as your trading results will then have far too many variables to produce any accurate conclusions. Each trade should be recorded separately in its own system, and after around 20 trades, you should be able to calculate the reliability of your chosen methods.
The Psychological Factors
Other pieces of relevant information will increase your overall effectiveness and the trading improvements and benefits you can yield. Your trading journal should also provide details of why you decided to enter and exit the trade and exactly how you feel emotionally about it. This should include your decision-making process, how you felt about the trade, how you chose the stop loss level and the mental effect of the final outcome.
Psychologically, you should also understand and record your mindset and if you are confident in your choices or have any doubts. The journal should also contain a recap of each trade, how you feel you managed it, if you followed your plan, or if you struggled mentally with any part of the process.
Identifying Errors And Making Improvements
A detailed and well-planned trading journal is an invaluable tool for looking back at the historical performance and making improvements. Not utilising a journal means you have no accurate idea of how your performance has been over time. Using a journal allows you to review your comments, why you made decisions and exactly how far you have progressed, something that statistics or profit/loss statements alone do not provide.
Along with this, a journal will help you to identify any mistakes or errors that may be creeping into your decision making or trading focus. Continually updating and regularly reviewing your entries will enable you to pinpoint when something isn’t working, assess different areas of your trading and make the necessary improvements.
Analysing Your Historical Results
Taking regular planned time to perfect and interpret data in your trading journal is one of the primary ways to improve your trading success. Once you have compiled a set of trading results, then you can use it as a tool to look back over your actions historically. It will give you a much clearer picture of all aspects, allowing you to make improvements to trading behaviour patterns.
When you are analysing these results, you should be able to see where you could have more effectively timed market entries or exits. Assessing whether you strictly adhere to your rules and trading plan will highlight how disciplined you are, especially under pressure. It should also help you identify other small indicators or signals that you can incorporate, mainly when looking at ways of avoiding trading errors in the future.
Using Chart Pictures
Another great tool to add to your journal is the actual chart pictures relating to the pre-entry and post-exit of your trade. These will assist visually in identifying the actual trade and the decision-making process, along with trades that were incorrectly managed. They should indicate your entry, stop loss and potential profit levels, which you can mark on the chart, along with the reasons you decided to make the trade.
Simply create a new folder to store all these images and add the currency pair or market name of the trade and the date, so that you can easily identify them.
Day Trading Journal Options
You can make your trading journal as complex or as simple as you choose. As they form part of the essential risk management tools kit, you can find many PDF or Excel spreadsheet journals that are provided online and can be downloaded for free. For more experienced traders who value the convenience of advanced analytics, many websites are offering popular trading tools. These may come with a cost, but allow Forex traders to quickly and easily analyse sets of complex trading data.
The Bottom Trading Line
It is essential to establish a trading routine that you religiously follow every day. Successful day traders are always consistent in their routines and make the same decisions on multiple occasions. Although it can be a chore completing your journal for each trade, it should be built into your daily routine if you want to achieve direct benefits to your trading results. If it becomes a part of your normal life, then you will never miss any opportunities.
Once you have established your system’s expectancy and analysed your own trading, then you will find yourself acting with total confidence. When you lack this confidence, there is a danger that you will not execute trades in accordance with your plans. Second-guessing or paralysing your decision-making with extensive market data analysis can be lethal. Using your trading journal, profitable trades will not feel random, and any sustained losses will be expected and planned for.
Forex 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.