5 Forex Day Trading Strategies and Tips

Day trading is another option for those traders who are looking for a short trading style but find scalping as too fast or too stressful for them According to the definition of the US Financial Industry Regulatory Authority (FINRA), a Day Trade is defined as the purchase and sale, or the sale and purchase of the same security in the margin account. So the core of the Forex day trading strategy is to identify one or more opportunities in a day and aims for large payouts, rather than typical 10-20 pip gains in scalping.
The first common characteristic of the Forex day trading systems is that most traders close their positions before the end of the business day, so they do not hold trades overnight. This helps them to not only reduce risk but also avoid rollover fees.
Because day trading is considered very risky, the beginners might make use of demo trading accounts, which lets market participants practice and learn from their mistakes without losing real money.
Trading news releases is very popular among day traders, since during those announcements market volatility usually increases, which can present them with more opportunities.
Trend following is another essential day trading Forex strategy. The experienced traders make use of the latest charts, moving averages, support, and resistance levels to identify and follow market direction.
Finally, it is essential to choose the correct profit/loss ratio. For example, Ross Cameron, a successful professional trader and founder of the ‘warrior trading’ website recommends aiming for a 2:1 ratio as a key for risk management.

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Forex Day Trading Tips and Strategies

For those who are looking for how to start Forex day trading, opening a demo trading account can be something worthwhile to consider. Many beginners make a mistake of depositing and trading large amounts before they have gathered sufficient experience. The results are predictable, in most cases, this results in massive losses and they give up on Forex trading forever.
The reality here is that one does not have to lose thousands of dollars in order to learn from his or her common mistakes. This can be achieved free of any charge with Demo trading accounts. Most of them allow new potential clients to trade with virtual cash without any deposit requirements.
In this helpful in many respects:
  • Traders can experiment with high leverage levels or using large percentages of trading capital in one trade and learn about those common mistakes from practical experience.
  • They can choose the level of leverage that they are most comfortable with.
  • Traders can test day trading Forex strategies on real-time currency pairs and get some idea which ones work best for them.
  • They can experiment with several currency pairs and then select the ones which are easier for them to trade.
  • Traders can track their trading performance, record the total amount of winnings and losses, how did the account balance increase or fall by the end of the trading week. This can help people to form realistic expectations when it comes to potential payouts.
  • Finally, from this experience traders can get some idea about how the trading environment changes during major announcements and get some experience in trading during interest rate decisions, Consumer Price Index, Gross Domestic Product releases, and other important events.

The best thing about the demo accounts is that traders can get all those benefits without losing any money. So utilizing this opportunity can definitely be in the list of FX day trading tips.


Closing all positions at the end of the trading day

Firstly, in all honesty, there is no such thing as one best Forex day trading strategy. Some methods might be more effective for some traders than for the others. However, there are some FX day trading strategies that work for many people.
So why do the majority of day traders prefer to close all of their trades at the end of the business day? This day trading forex strategy essentially has two benefits.
Firstly, it might be helpful to keep in mind that if the trader leaves the position open overnight, there can be serious changes taking effect, before he or she could return to the trading platform. Before the markets open in the US, most of the trading in the Asian and Australian markets are already concluded.
During this time there might be some major economic news release which could have a major impact on the currency pairs, therefore traders while being away from the platform can lose out in his or her positions. Therefore by closing all positions before the end of the business day, a trader can guard against those risks.
Another important factor to consider here is that Forex brokers charge rollover fees for the holding positions overnight on the majority of the currency pair positions. There are some exceptions to this rule.

Day trading strategies for beginners

For example, according to Axiory’s swaps calculator, if a client opens the long  $100,000 AUD/JPY position and holds it overnight, then this broker will pay $0.29 to the trader. However, in the case of the short position, the client is charged $5.54 per day. However, if the trader closes this position before the end of the business day, he or she can avoid this expense altogether.
Finally, when it comes to the strategies for FX day traders, it has to be mentioned that unlike in scalping style, here it is not necessary to open a large number of positions on a daily basis. In fact, some professional traders even limit themselves to one trade per day. And essentially it gives them more time to analyze several pairs and choose the ones with the most profitable setups.

Trading news releases

Another one of the FX day trading strategies would be to focus on the economic news. Learning the essentials of technical analysis, understanding charts, moving averages, Bollinger bands, and other tools might take a lot of time. Also, it can be very subjective, since several traders might interpret the same signals quite differently.
All of those factors mentioned above might make technical analysis very difficult for the beginners. Therefore, the trader can instead focus on the latest announcements.
Every major Forex news website and Broker has an Economic Calendar. This lists all of the expected news releases throughout the week. For example, Axiory Economic Calendar also shows the level of expected volatility for each event. As the announcements come out, the actual figure is also added to the list alongside market consensus and indicators from the previous period.
This is helpful in two ways. By comparing the latest numbers to the previous release, traders can get some idea about the overall trend of the indicator. For example, recently Eurostat published a flash estimate of the Eurozone Harmonized Index for Consumer Prices (HICP), which stood at 0.7%.
However, if we consider that this indicator in the previous month was at 1.4%, then it is possible to conclude Eurozone inflation is not only below target, but it has been falling for at least a couple of months. This conclusion can be used for EUR based trades.
Another helpful method here would be to compare the actual number with the market consensus. If it is less than expected, then potentially this can be very bearish for the currency in question. The opposite is also true.
When it comes to Forex day trading tips it has to be mentioned that many professional traders try to avoid opening positions before the major announcements. Such important news releases as interest rate decisions, latest Consumer Price index, Gross Domestic Product growth rate, Non-farm Payroll numbers can lead to massive increases in volatility. Therefore for many traders, it might be recommended to wait for a while for market reaction and open positions after that.

Trend following techniques

Some experienced traders are trying to identify and capitalize on breakouts, others are looking for signs of reversal and employ counter trend tactics.
Those techniques can be confusing for many beginners. Luckily, there are many simple Forex day trading strategies as well. One of them is a trend following. The basic idea behind this is this: Trader analyzes several currency pair charts with Simple and Exponential Moving Averages, looking for those where uptrend or downtrend is confirmed and open positions accordingly.
Obviously, such strategies for FOREX day trading does require either stop-loss order in place or at least regular monitoring of the market. However, here it might be useful to keep in mind that, Trader does not have to achieve 90% or 100% winning trades in order to succeed in Forex. Many professional full-time traders have 55% or 60% winning trades, but they are still able to earn the living from this. So even if the trader successfully identifies trends in the majority of cases, that might be enough to earn decent payouts.

Setting correct profit/loss ratios

So what other strategies can we learn from Professional for fx day traders? As mentioned before some traders succeed even with 55% winning trades, however for some market participants, especially for those with little experience, that goal can be difficult to achieve.
There are some remedies to address this problem. For example, the principle of using 2:1 profit to loss ratio is championed by Ross Cameron, a successful professional trader and founder of the ‘warrior trading’ website. He mostly applies this method to stock trading, but obviously there is nothing stopping people from using it in Forex as well.
As Cameron explains in some of his works, for every 50 cents he risks in stock trade, he aims to achieve at least $1 gain. So how can this tactic work on Forex trades?
Well, basically if a trader opens a long EUR/USD position at 1.1000, he or she can place a stop-loss order at 1.0980, 20 pips lower than the current market price. However, the trader would be aiming for 40 pip gain, so the position will be closed at 1.1040.
This type of day trading tips can be very handy for FX traders since this strategy lets them succeed even with 50% or 40% winning trades. However, it also has to be mentioned that no method can guarantee a 100% success rate, and many things still depend on the trader’s decisions as well.
When it comes to strategies for day trading FX it might be helpful to point out that there are no standard amounts of pips for setting range between stop-loss level and profit target level. All currency pairs have different average volatility. To illustrate this, let us take a look at this chart:

Forex day trading tips

This diagram shows the average daily volatility of Forex pairs during the last 52 weeks, from the middle of April 2019 to April 14th, 2020. As we can see from the chart, during the last 12 months EUR/NZD, NZD/USD, AUD/USD, USD/CHF, and EUR/USD have been relatively less volatile currency pairs. The average daily volatility of those securities varies between 58 to 67 pips.
On the other end of the spectrum are the ones with high average daily variation, 150 to 202 pips per day. This includes such currency pairs as EUR/AUD, EUR/NZD, GBP/CAD, GBP/AUD, and GBP/NZD.
Consequently setting a profit target of 80 pips in a single day might be reasonable with GBP/AUD, but it might not be a realistic aim when it comes to less volatile pairs such as EUR/CHF.

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Forex Day Trading Tips for Beginners - Key Takeaways

  • The majority of day traders usually close all of their positions by the end of the day. This helps them to avoid the risks of overnight volatility and also potential rollover charges.
 Forex day trading strategy
  • Practicing on a Demo account can be one of the key day trading strategies for beginners. It helps them to get accustomed to market volatility and also learn about their mistakes without having to lose their own money. After some weeks of practice, new trades can move on to the real account and put their newly gathered experience in action.
  • There are several professional day traders who are engaged in counter-trend trades, however, for beginners, this can prove very risky and therefore it might be more recommended for them to stick to market direction.

FAQ: Strategies and Tips to Day Trade Forex

What are some of the most common mistakes of Day Traders?

While searching for the best day trading strategies, you might come across some pretty significant mistakes. For example, overleveraging is a very frequent blunder. The US regulatory reforms did limit the maximum leverage at 1:50 in America. However, even with 1:50 leverage it only takes 2% swing against the trader’s position for it to be entirely wiped out.

Committing a large percentage of capital to one single trade is another common mistake. This is especially dangerous if it is combined with high leverage since traders can potentially lose thousands in a single day.
Some market participants also ignore rollover charges and do not take it into account. Obviously, for 1 or 2 trades it can be a very small sum, but it can eventually add up to a more significant amount and take the toll on the trading account.

How does day trading differ from scalping and swing trading?

Instead of holding positions for several hours, most scalping trades only focus on 1 to 15-minute timeframes and aim for only 5 to 20 pip gains.
Swing traders are also different from day traders in a sense that they might hold positions for several days and even weeks, instead of closing traders at the end of the business day.

How much on average do the professional traders earn from day trading?

The Forex traders have no fixed salaries unless they are employed by the investment bank or Forex brokerage company. For other traders, this depends on the amount of trading capital and performance. Many professionals are aiming to earn from 10 to 20% of their deposits per month.
For example, if the trader maintains $25,000 achieves a net gain of 10%, then he or she would earn $2,500. When at the same time the one with a $100,000 account only needs 2.5% gain to make the same amount.

How does Forex differ from the Stock market day trading?

Essentially, there are two key differences. Stocks are more volatile than currencies since they represent individual companies, instead of national economies, therefore they are more vulnerable to market swings.
Another difference is that in the case of stocks the trader has to focus on the latest company earnings and quarterly reports, instead of analyzing Economic growth and inflation figures.

Why do some experienced traders prefer long term trading to day trading?

Some traders find day trading very stressful and risky, so they might prefer to avoid this style. Also, strategies to day trade Forex are quite different from long term trading methods. Some traders like to focus on the fundamentals of the economy, which in general can have a major impact on the currencies, but it might not be that useful for short term trades.
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