Best Forex Day Trading Strategies for Beginners
Published December 30, 2021.
Also known as intraday trading, day trading refers to buying and selling a forex (foreign exchange) asset (currency pairs) within one trading day. Unlike long-term investing, day trades are relatively short purchases & sells where the positions are held briefly, usually a couple of minutes or hours.
Keep in mind that day trading is not a forex market strategy - instead, it’s a specific approach to any market that requires significantly more research and time. This means that forex day trading can have plenty of unique strategies, and many of them are specifically geared towards beginners.
Can Anyone Begin Day Trading?
Anyone can start day trading, but not everyone will succeed. Although day trading doesn’t require any formal qualifications, those that have done more research and dedicated more time will have significantly more success.
The first step to trading forex is to decide on a broker, and there are many to choose from. For more advice on this topic, read our post about the Top Forex Brokers.
Advice and Strategies for Day Trading Forex
Being a relatively simple forex day trading strategy, trend trading is a style that works on capturing the asset’s current momentum. For example, if the price of a currency pair has a trend of going upward (increasing in price), the strategy is to enter a long position and hold it for a profit. Trend trading is often regarded as the best forex day trading strategy as it’s incredibly beginner-friendly and consistent.
Unlike trend trading, swing trading requires you, the trader, to identify the potential of a “swing” (price change) occurring. Although the strategy is beginner-friendly, most experts state that it’s not a strategy day traders should look into because it occasionally requires holding a position overnight, dismissing the entire approach of day trading.
Scalping is one of the safest and most risk-free strategies a beginner can look into. Put simply, scalping is the action of profiting by opening a position when a minuscule price change occurs (usually less than 1%) and then selling it for a small profit. Still, keep in mind that scalping is a dynamic approach to day trading, and often requires the use of indicators, predictions, and research.
Contrary to the previous strategy, mean reversion is based on profiting from an extreme change in the price of a currency pair. Of course, the position is opened on the premise that the asset will return to its previous price. As an approach, mean reversion is usually best for intermediate traders as it’s riskier than some of the other strategies mentioned above.
Also known as the MF index, “money flow” is an analysis tool that uses the current price and volume of an asset to identify if it’s being overbought or oversold. Most experts recommend that a beginner avoid the MFI approach as it’s geared towards intermediate and advanced traders. Still, keep in mind that it can be an incredibly profitable forex day trading strategy.
The Difference Between Forex and Stocks for Day Trading
The day trading approach usually stays consistent regardless of the asset you plan on trading, though there are slight differences depending on the asset you’d want to trade. For example, forex trading is almost always more volatile than stock trading. This is because the market is primarily dependent on political and socio-economic events, and the patterns are difficult to predict due to the market being open 24/5.
On the other hand, day trading stocks is more predictable and significantly more stable. However, keep in mind that the stock market is less liquid than the currency exchange market. This means that there’s an overall smaller flow of money, meaning that the profits are not as big when compared to forex.
What Can Make Day Trading Difficult?
Many things could make a beginner’s journey into day trading difficult, though underestimating the risk that comes with day trading is usually the biggest one. It’s important to remember that being successful in day trading requires plenty of time, research, and education, whether formal or informal. Successful day traders earn money consistently, though it’s not something you can expect to happen overnight.
All in all, day trading is an interesting approach to the forex and stock market. It’s widely regarded as one of the most profitable trading practices but also the most time-consuming. Since there is no secret to becoming a successful day trader, you must do the research and invest the time. There is no day trading strategy that always works for forex, but there’s always something you can do to better your skills as a day trader. There are many beginner-friendly materials and investment books you can go for, but nothing will fully guarantee your success.