Beginner strategies for forex day trading
Any trader knows that time frames are the centerfold of forex. Everything relies on and is defined by them, and that includes how you choose to approach the market. A rather advantageous method is that of day trading, which involves riding a trend out for no more than a day. In fact, most beginners aim for four hours at a time.
The difference between it and scalping is that the former usually implies a time frame which is between one hour and a full day, while the latter refers to a position that is held for just a few minutes, fifteen at most. Its main advantage is that you aren’t putting your capital at risk long-term. In just a few hours, you can observe whether or not a move has been beneficial.
You can find more day trading info on Mtrading to advance your education on the topic. The essential thing to establish before going in is what your strategy is going to be. And to do so successfully, you also need to know what the most common mistakes to avoid are. Let’s begin.
Strategy and Profits
Everyone knows that the foreign exchange market is unpredictable. Therefore, the best strategy is one that can be perfected over time as contexts evolve. According to The Balance, your win rate is the fundamental aspect to be followed when adopting. For most day traders, one that is above 50% is desirable.
This is rather easy to calculate. Just take a step back and assess your past 100 trades. How many of them were successful? If you won money in 67 out of them, then your win rate is of 67%. This is a very good result, as explained above. The risk to reward ratio of your trades is also something to be considered.
For example, if you lose ten pips, yet make fifteen in wins, then your successful trades are bound to be profitable. Even when half of them fail, you will still bring in some pretty pennies. Of course, when your win rate is higher, your risk to reward ratio is also more flexible. At the end of the day, it all comes down to careful planning.
What to Avoid
Risk management is an integral part of a reliable methodology that will help you profit from day trading even as a beginner. Thus, you should keep your eyes open and your head clear. There are quite a few common mistakes that you might fall prey to. Here is what they are and how you can avoid them.
1. Trying to Stay for Too Long
The first common mistake that novice day traders make is trying to hold their position for too long. In reality, the concept doesn’t necessarily have to imply riding a trend for an entire 24 hours. You can do it for 15 minutes, one hour, or even four hours at a time. In fact, the four-hour window is the recommended one for newbies.
In order to turn a profit on a full day trade, you need to have a lot of liquidity and know what to do with it. Beginners usually want to outdo themselves, which is why they end up averaging down and losing money in the long run. Therefore, be smart about it and start off slow. When you’re ready to progress, you will know.
2. Trading After News Headlines
Another widely-encountered error that beginners tend to make when applying this strategy is trading immediately after news headlines break. It’s no secret that the sociopolitical and economic context of the world heavily influences the market, and once a major event occurs, prices start moving aggressively.
It might seem tempting to jump in right then and there in order to bring in an easy profit and get some pips, but this is more dangerous than it seems. Without proper planning and testing, it can result in major losses. Simply put, the small change of winning is just not worth the risk of cutting a hole in your capital.
3. Having Unrealistic Expectations
The worst things you can do when day trading is to have unrealistic expectations. Although the progress of technology has made this technique considerably more profitable, you shouldn’t expect to become Warren Buffet after your first few trades. Improvement takes time, and success is built gradually.
What is more, you need to accept that the market can be volatile, fickle and illogical. Even when masters of analysis cannot accurately predict everything that happens. Therefore, avoiding errors in judgment all the time is impossible. Face your mishaps, learn from them and move on to bigger gains.
Forex day trading is a methodology that delivers relatively quick results. What is more, it can be rather advantageous because you are able to assess the success or lack thereof of a plan in a one-day interval at most. Knowing when to exit and composing yourself when news hit the market is important, but once you get into it, results are bound to appear.