- Forex Day Trading is a system of buying and selling currency pairs within the same day (intraday).
- Day traders use technical analysis to determine the best entry and exit points to profit from a price change.
- Price Action is a methodology behind most day trading forex strategies.
- How to make money day trading? Here’s the analysis of top intraday strategies for beginner and intermediate forex traders.
Forex Day Trading is known for high-leverage offers and quick bets that sometimes last less than a minute. However, day trading is a serious business, and professionals don’t bet without a profitable trading strategy that helps define when to enter and exit the market.
What is day trading?
Day trading happens when a trader opens and closes a position within the same day (intraday). You’re day trading if you buy and sell a stock, bond, or FX pair before the markets close for the day. If you leave your currency pair to stay open for a few days, you’re not forex day trading.
How to day trade?
Day traders take advantage of smaller price moves and banking on short positions, open for hours or sometimes even minutes. Forex day traders use different indicators to draw technical, fundamental, and sentiment analysis. Day traders usually rely on technical analysis to find the next forex opportunity because it’s more practical for everyday bets. Technical analysis doesn’t include disruptive news, payroll data, and market sentiment, making it more favorable for intraday bets, especially on the non-exciting days when the market trades on its own.
What intraday trading strategies should I use?
We’re glad you asked.
The Basics for building an intraday Forex strategy
- Trade highly-liquid currency pairs.
- Always use a stop-loss order to limit the risk.
- Stay consistent, and follow your strategy through the end.
- Manage money, and don’t spend more than you planned to spend.
- Stay wary of emotional day trading if you’re not an experienced trader.
- Use a forex demo account where you can test each strategy and tactic.
Forex Price Action Trading
Price action is the backbone of most intraday trading strategies. Price action records change in the price over time. Think of price action as a financial footprint of every currency transaction. Forex traders include price action in technical analysis and often rely on that research to enter a position. You can follow the price change with different indicators, including Harami cross, Engulfing Pattern, and Three White Soldiers. Most often, a simple candlestick chart is enough to spot a price action signal. However, most traders draw different conclusions from the same data — where some claim a trend’s consolidation pattern; others may see a reversal. Candlesticks display the lowest and highest traded prices for a single time-frame (5 min, 1 hr, 4 hr, etc.). The seller’s candlestick (often black or red in color) tells us that sellers have won in a specific timeframe because the price is now below the opening levels. Conversely, the buyer’s candlestick (most often white or green) tells us that buyers have won in that timeframe. Previous (closed) candlesticks tell the exact closing price for a selected time frame.
Top 3 day trading forex strategies that will make you money when used responsibly
- Momentum Day Trading Strategies.
- Reverse Trading Strategies.
- Moving Average Strategies.
1. Momentum Day Trading Strategies
Momentum trading is a fundamental strategy where traders bet on the already formed trend — buying high and selling higher, or buying low and selling at the bottom. Momentum traders usually work in the middle of a longer trend and identify a strong direction in fx pairs. Simply said, investors buy short-term uptrends and sell when the FX pair loses momentum — hence the name, Momentum day trading strategy. Momentum Day Trading tactics:
- Long (buying FX pairs when on an upward trend).
- Short (selling when the trend indicates downward momentum).
- Absolute Momentum (traders identify and bet on strong historical trend).
2. Reversal Trading Strategies
Contrary to Momentum intraday trading, reversal trading is a strategy of spotting a trend reversal on time and profiting from a significant price change. Reversal trading is time-sensitive and potentially dangerous if not done right. If a trader enters too early or too late, the price trend may start building in a new direction. However, when done right, reversal strategies can help traders capture big wins in a timely manner.
Reversal Trading tactics:
- Higher Highs and Lower Lows (identifying Higher Highs in a downtrend may hint at a reversal. Similarly, Lower Lows point to a possible uptrend reversal).
- Pin and Drive (when price rejection and momentum correlate, you may find an opening for a trend reversal. A pin bar followed by the opposite full candlestick is usually a point of entry for Pin and Drive traders.)
- Break and Retest (when price retests the broken resistance levels and continues in the new direction)
3. Moving Average Strategies
Moving averages are tools that provide data on historical price movements and offer insight into long-term resistance and support levels. EMA (exponential moving average) crossovers are the most popular indicators in moving average strategy. Professionals commonly use EMA 5, 10, 12, 20, 26, 50, 100, and 200-day indicators. The 20 EMA indicator calculates the average moving price for the past 20 days, 50 EMA for the past 50 days, etc.
Moving Average tactics:
- Moving Average Ribbon (trade on the slow transitioning trend changes).
- Moving Average Convergence Divergence (a histogram that helps traders identify market direction and trend).
- Moving Average Envelopes (trading within a price envelope limited by two, often 10-day and 100-day, EMAs).
- Forex Scalping (a popular tactic, sometimes referred to as a strategy, scalpers can profit from fast-paced and slight price changes.)
Test and find the best day trading strategy with a demo account
The list of trading strategies from this article is confirmed and tested by forex experts with decades of experience. Not every strategy works for everybody. Forex intraday trading can be exhausting both mentally and physically, and it’s important to trade at your pace and in your time. Find the best strategy that suits your emotional and physical capacity, and slowly build to bigger and more complex bets. You don’t have to start with real money just yet. Open a demo account and test each intraday strategy to find what works best for you before taking on actual risks.