Forex Day Trading - How To Come Up With A Profitable Strategy
Day trading the forex markets can be a highly profitable activity. The major currency pairs will often trade within a range of around 150-300 points on a daily basis and will trend strongly either upwards or downwards at various points of the day. So therefore there are plenty of opportunities to make money every single day. The difficult part is coming up with a profitable trading method.
It should be pointed out that the vast majority of people who give day trading a try ultimately end up losing money. The currency markets are not easy to trade, particularly over the shorter time frames. This is why you should try and avoid the 1 minute and 5 minute charts if you can.
You may think that these are the most profitable time frames to trade because there are lots and lots of short-term trends available to trade throughout the day, but if anything they are the most difficult. The reason why is because when you look at these time frames you are essentially looking at random price movements. Any trends that you do see are generally very short term trends and they will often fizzle out after about 5-10 pips. Therefore with a spread of anything between 2 and 4 pips, you're not left with very much profit, even if you do pick out lots of winning trades.
This is why I personally recommend you trade the 15 or 30 minute charts, or even the 1 hour charts. Day trading doesn't have to be all about taking lots of small positions that may only last a few minutes or so. You can day trade the markets just as effectively using the slightly longer time frames. That way you have more time to think about your positions plus you will often find that the trends are a lot clearer and therefore you will have a much higher success rate.
So when creating your own day trading system I suggest you start off trading the 15 minute charts at the very least. You also want to keep the system as simple as possible. Try and devise a system that always trades in the same direction as the overall trend, whether it gets you into a trend at the start of a new trend or in the middle of a trend after a slight pull-back.
Trying to constantly pick out highs and lows may potentially create more profitable opportunities but it is exceptionally hard to do, particularly on an intraday basis. You're much better off creating a simple trend-following system using a few basic technical indicators.
The fact is that most basic trading methods can be made profitable with the right risk management principles in place. For example as long as you cut your losing trades early and let your winning trades run so they are always greater than any losses you may incur, then you are in with a great chance of making money.
So always spend a lot of time backtesting your system in order to determine where you should place your stop losses (keeping them as tight as possible) and to identify how you can extract the maximum amount of pips from every single trade.
Making consistent profits from day trading is certainly not easy but if you stay away from the shorter time frames and always trade with the trend using tight stop losses, then you have a great chance of becoming a profitable day trader.
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