DAY FOREX TRADING

Day trading is defined as the purchase and sale of a financial instrument within a single trading day. This is an achievable practice in all the financial markets, but it is especially prevalent in the Forex market as a result of this market being the most liquid of all financial markets. In general, day traders are a class of trader in and of themselves. They have large capital backing and are well informed. They will normally use a high level of leverage to maximize their profit levels. They liquidity they provide plays a very important part of the Forex market as a whole. In addition, they facilitate the smooth running of the Forex market with arbitrage. This article will examine day trading and the traders involved in it.

As mentioned earlier, day traders are a class of their own. They are usually well educated and they do this type of trading for a living. Unlike many retail traders, day traders are by all intents and purposes, truly professional. This class of trader has an in-depth knowledge of the Forex market and therefore, to be classified as a day trader, there are some criteria that need to be met:

In-depth knowledge and experience within the Forex market

Those who are new to Forex are strongly discouraged from trying to day trade. In most likelihood, novice traders will end up incurring losses.

Sufficient Working Capital

Day traders will only utilize their risk capital to free them from the stress and risk possibility of financial ruin. In addition, because the margins are razor thin, a day trader needs a large amount of capital to be able to profit from the intra-day fluctuations in currency prices.

A Trading Strategy

For one to have an advantage over others in the market, one must develop a proper strategy before venturing into day trading.

“Discipline is the Bridge between Goals and Accomplishments.”

Day traders are normally individuals with a strong sense of discipline. Without discipline, it is easy for one to end up trading based on emotion.

Day traders rely heavily on technical indicators that indentify opportunities to make money. Some of the technical indicators used by them are:

Flag Indicators

This is a Forex chart guide that looks like a flag with a mast on either side. This type of pattern results from narrow price fluctuations and indicates a consolidation before the proceeding movement resumes.

Elliott Wave Theory

Discovered by Ralph Nelson Elliott, the Elliot wave theory explains that the financial markets move in a repetitive and identifiable waveform.

Chart breaks

This is another type of indicator that a day trader will look for in their trading strategy. With this, day traders look for assets that are trading near support and resistance levels. To help them identify a breakout point, day traders will utilize tools like:

• Channels
• Fibonacci levels
• Gann levels
• Triangles
• Wolfe Waves

Even though day trading is a controversial topic, it is becoming more common as advances in technology allow the average traders access to software tools that were once available only to large institutions of trading. Nevertheless, novice traders are strongly discouraged from embarking on day trades until they have gained sufficient experience and attained enough risk capital to enable them to trade properly and efficiently.

Why Forex Trading

The acronym for Foreign Exchange, Forex is the market place where the currencies of the world are traded. The market is anchored by governments, speculators, central banks, banking corporations, retail investors, and other financial institutions. It is estimated that nearly R4 trillion is traded daily in the global foreign exchange markets, making this several times larger than all of the US stock exchanges combined. The Forex market is also unique when compared to the other financial markets as it has no centralized or physical location. It is just a network of banks, financial institutions, hedge funds, corporations and retail traders buying and selling currencies with one another. Because of this unique characteristic, the Forex market is not bound by a single time zone. It operates on a 24 hours timeline from one time zone to another where all the major financial centers are located.

In earlier times, the only way a retail trader could have accessed the Forex market was through commercial banking institutions that deal with currency trading for investment and trading purposes. In 1971, when the major countries of the world floated their currencies, and as a result, trading in currencies increased tremendously. Many consider this the birth of the modern Forex market. Nowadays, apart from importers and exporters dealing with Forex, there is a wide spectrum of market participants. They include hedge funds, speculators, portfolio managers, and retail traders. Each individual group of market participants has their own objectives and reasons for dealing in Forex. They range from payment for goods and services to risk hedging, to pure speculation.

In general, to trade in Forex, a retail Forex trader would need to go through a market maker or a Forex broker. The trader will select the currency pair that they want to trade in based on their research and analysis. In the past it was normal for the Forex broker to just execute the trading orders and not to provide any recommendations. Nowadays, many brokers will offer trading tips, daily recommendations, and even researched analysis.

To make money in Forex trading, one can either take a long market position or go short. By going long, the trader is buying a currency pair and hoping to sell it later at a higher rate, thus profiting from the difference between what he paid for it and what he got from selling the currency pair. The opposite scenario is referred to as going short. In this situation, the trader will be selling a currency pair at the current market rate and hoping to buy it back later at a lower rate. This is one of the main attractions of the Forex market. Anyone can profit from the market, regardless if it is a bull or bear market. As long as it is possible to predict which direction the market is heading, a trader can position themselves to take advantage of market trends.