This article looks at day trading forex trading systems and what is required to effectively use this method of trading.
There are many different forex trading systems that can be used when you intend doing day trading. Day trading is a method where you do not hold a position for longer than a day. You will not hold the position overnight either. While there are a number of actual strategies that you can use there are certain factors related to day trading systems and methods.
When you use day trading strategies you have to look at currencies that are both liquid and volatile. The liquidity of the currency pair allows you to enter and exit the market at good prices. The volatility affects the profits you will be making as the more volatile currency pairs have greater movement values. Once you have identified the currency pair you want to trade, you should look for entry points.
To identify entry points you should look at candlestick charts and economic calendars. On the candlestick chart you should look at the patterns, technical analysis and the volume of movements. The way that you identify the entry point will depend on the day trading strategy you are using.
Using Stop Losses
Day traders always need to include a stop loss in their trades. The reason for this is that they are more affected by sudden and sharp price movements than any other kind of trader. A stop loss strategy that many traders use is to place two stop losses.
The first stop loss point is a physical one which is placed at a price that suits the risk tolerance of your trading plan. The second stop loss is a mental one and is set where your entry criteria are violated. This means that if there is a sudden turn in the market your position is immediately closed.
Forex Trading Systems Targeted Price
The price target you are looking at will depend on your day trading style. There are a few day trading strategies that have different price targets:
- Momentum trading usually has a basis in fundamentals or trends. The momentum trader will ride the trend of a currency pair until the price target of bearish movement comes.
- Fading is a trend strategy used by day traders where the position is closed after a rapid upward movement. The basis of this strategy is when the pair is overbought, early buyers will start to take profits and existing buyers are scared to take par. This is a risky strategy where the price target is when buyers start to step in again.
- Scalping is a popular short-term strategy which includes selling the pair very soon after opening the position. The price target for this strategy is just after the position has become profitable.
- Daily pivots are day trades that deal with the daily volatility of the currency pair. The pair is bought at the low of the day and sold when the high is reached. The price target for this strategy is at the next sign of reversal after purchase.
It is important that you know about the different trading methods and systems you can use when day trading.
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