Day Trading Strategies for Beginners

Introduction:

A day trader is a trader that buys and sells currencies many times a day and does not leave an overnight position. This means that a day trader usually trades within one time zone and does not cross into other time zones except maybe a trader in Europe where the afternoon session coincides with the American morning session. The concept of a day trader is to generate income on a daily basis using technical and fundamental analysis to facilitate this money making process.

Day trading Strategies for Beginners:

When starting out as a day trader a beginner needs to develop a simple trading strategy that enables the trader to have the opportunity to generate profits with a viable risk/reward ratio. To develop a strategy which meets these requirements the trader needs to learn about self-discipline, price charts, volume and price movements, technical analysis and fundamental analysis. In addition the day trader needs to learn about different candlestick chart patterns, volume movements and trend lines, all of which provide tools which enable the trader successfully day trade.

So the first pillar of a day trading strategy for a new forex trader is knowledge. The second pillar of a day trading strategy is an understanding of how the markets function. Elements such as when the highest volumes are traded, what type of economic data has the strongest impact on the market, what time frames are good for certain currency pairs, and the best time of day to trade?

The third pillar of a day trading strategy is to do with deciding how much loss you are comfortable with taking on individual trades. To do this you must establish the maximum loss you are willing to bear. This is something that must be done in advance and not on the fly as you trade. Before you actually make the trade you should decide on the risk/reward ratio for the trade and your loss limit. As soon as you reach your loss limit you should exit the trade. Never fall into the trap of not keeping to your strategy and stay in the trade hoping the market will turn. It invariably does not.

The next important pillar of a day trader’s strategy is the maintenance of documentation which record the day’s trades and the results of those trades. In this way you can gauge how effective your day trading strategy is and amend it accordingly. Documenting your daily trading will also enable you to repeat your successes.

The final pillar of your day trading strategy is hedging. Hedging is the act of selling and buying the same currency pair or the act of buying one currency pair and buying another currency pair which is historically inversely correlated to the original currency pair. Hedging in this way does not produce high profits but it does produce profits and reduces the likelihood of losses.

The above simple day trading strategy will enable day trading beginners to start a successful day trading career.

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What is Stop Loss

Stop loss is a widely used order aiming mainly at limiting the possible losses in case of negative market movements.
Stop loss is used only with open positions. When the market conditions are not favorable for a trader and the price has reached the level of Stop loss, the deal is closed automatically. Therefore, Stop loss helps the trader to control losses and in case of failures to keep safe at least the part of the deposit.
If a trader does not use Stop loss orders, the position is closed by the broker when the sum of losses is equal to the sum of the deposit.
There are 3 types of Stop loss orders: fixed Stop loss, sliding Stop loss and combined Stop loss.
Fixed Stop losses are set while opening positions. They cannot be replaced until the deal is closed. Sliding stop losses, on the contrary, can be replaced any time depending on the price movement. Another name for sliding Stop loss is Trailing stop that can be replaced either manually or automatically considering the traders settings.
Presently there are lots of discussions on whether it is necessary to use Stop losses or not. Some traders believe that Stop loss should be compulsory for trading, emphasizing the ability of Stop losses to prevent the loss of the whole deposit. If the price is rapidly moving in direction, which does not correspond to the forecast, the deal that has not been closed in due time can result in significant losses. The opponents of Stop loss believe that this order can limit not only losses, but profits as well. As the price movement is often unpredictable and unexpected, it can develop according to the trader’s expectations though with some periodic bounces crossing the Stop loss line. In this case the position is closed with losses though it was a possible to close it with profit.
As a rule, the decision on whether to use Stop loss or not depends on the individual strategy of a particular trader. Therefore, there is no single opinion on the necessity of using the limiting the losses.

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Forex and World Economic Crisis

World Economic Crisis is a burning issue not only for those dealing with finance but also for all social groups as everyone, one way or another, is influenced by economic cataclysms. Some are afraid of inflation rate and reduction of wages, the others are scared to lose their jobs.
So traders here are not the exception as their work is directly connected with finance and everything that is happening in the world of currency undoubtedly affects the exchange market. That is why, probably, at least once every trader wondered what would happen on Forex if another finance crisis takes place and how the members of the foreign exchange market should react to such major events.
Indeed, the World Economic Crisis leaves its mark on Forex with both positive and negative aftereffects.
Therefore it is very important for every trader to correctly react to financial cataclysms and try to elicit all the benefits out of such situation, still getting the profit.
First of all, there is no need to panic while monitoring a huge flow of world economic news. During the crisis period the amount of such news is getting much bigger than during peaceful periods. As soon as the financial situation loses stability, the currency rates undergo great changes: plummeting of exchange rates becomes a common thing for many national currencies which belong to the countries involved into crisis. While the newspapers headlines as well as on-line publications are full of information about the new world economic events, it becomes more complicated for a trader to deal with such a great amount of information, analyze the conditions in time as well as correctly predict the behavior of currency rates.
Nevertheless, together with the right approach and substitution of emotional breakouts for rational judgments it is possible to change things for the better. A trader can easily benefit from this event and multiply his/her capital while continue working confidently.
There is no need to be afraid of the raised market volatility - better to know how to get money out of it. As Forex trade is based first and foremost on buy and sell operations, the traders risk less to lose their job during the economic crisis.
The tools and methods that exist on the foreign exchange market will always allow to get the profit. If financial crisis involves some currency exchange rates falling, the quotes of other currencies raise automatically, which in case of competent analysis gives an opportunity for a trader to consummate a transaction with a benefit.
Undoubtedly the influence of World Economic Crisis on Forex is tangible. Yet, despite the traders’ disturbing expectations, financial turmoil cannot lead the exchange market to decay.

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Money Management Techniques

When trading on Forex, it is necessary to know how to properly place your capital; how to calculate the amount of funds needed to make a trade in order to obtain sufficient earnings; and if it comes to loss, how not to loose your entire deposit.

To achieve these goals, there are special equity management methods (money management techniques):

No equity management methods. Most traders, when opening a position, do not calculate the amount of funds that are being used, estimate potential earnings or potential loss. This is considered to be a technique too, but if the capital is not very large to begin with, several unsuccessful trades will make it completely disappear.

Multiple contracts. Opening several positions on the foreign exchange market on different instruments, for instance, EURUSD and EURGBP, a trader can earn profit if the price moves in the right direction. Earnings can be considerable, losses too though.

Fixed amount. Depending on the amount of funds available, a trader decides how much can be put at risk when opening one or another position. The trader then makes deals not exceeding this amount.

Fixed equity interest rate. This technique is similar to the previous one but there is one small difference: the trader determines the equity interest rate, but not the equity amount.

Establishing correlation between profits and losses. It is necessary to track statistics on all operations (the amount of losses, profits and the correspondence between them). When you see the correlation between them, you can apply what you have learned to your trading.

Equity curve trading. Most people are acquainted with moving averages, which can act like signals for entering the market or leaving it. According to this method, moving averages (long- and short-term) are used to forecast trade results. If the short-term moving average of the equity curve is above the long one, a position can be opened and it will be profitable. If, however, the short-term moving average is below the long one, it is better to wait for a while.

Choosing a particular money management technique of trading on Forex can help you rationally use your money on the market and earn profit. Money management techniques are used for opening positions.

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Difference between Winners and Losers

A trader going deeply into Forex should realize that currency trades imply a certain risk: you can open profitable positions one by one, but any wrong step may bring you a total loss in the blink of an eye.
Your success does not entirely depend on your trading experience and professionalism. Every novice and professional should understand that the risk is always there, so it is better to keep an eye out. In order to trade on Forex and gain profit, you have to follow a constructive approach, be attentive and analyze every factor which may affect trends.
Below we are going to deal with 9 factors underpinning a successful trading strategy:
1. Traders who decided to work in a short-term period are initially in a risk group, which brings them closer to failure. The main reason for failure of short-term traders is a lack of training and a strict trading plan to follow, not the time limits they set. Lack of experience and knowledge does not allow even a tiny mistake, which can result in a loss of deposit. At the same time, such traders often do not have a lot of money on their accounts. More successful traders work in medium- and long-term periods. Statistically, medium- and long-term trading is more successful. The same can be referred to the funds invested, a capability to stay on the market depends much on the starting capital.
2. Losing traders often spend a lot of time on analysis of where the market will be tomorrow, while more successful ones decide how to behave in the current situation and apply their strategy in accordance with their conclusions. If a trader can foresee the reaction of crowd, he/she will definitely achieve success. The probability of deriving profit would be much higher if a trader can respond to irrational buying and selling of the crowd by a rational action plan. Therefore, it is much more difficult to be a successful analyst than such trader. An analyst has to perform more complicated work, as they have to predict the market movement and recommend how to earn a maximum profit while a successful trader just follows the market.
3. Successful traders pay attention to losing trades and to correlation of profit and loss, while losers only concentrate on their successful trades. It is much more important to track your risks than your profit or loss. Professional traders always estimate how much they can earn and how much they can lose.
4. As a rule, those traders who cannot control their emotions are never successful. Professional and experienced traders analyze the market putting their emotions aside. In case a trader opens and closes positions based on emotions only, this approach cannot be considerate or logical. However, complete ignorance to one's emotions is wrong too. Sometimes excessive stress may lead to mental disease and loss of all trading skills. The best way is to track each emotion and consider if the reasons for one or another decision still remain.
5. All unexperienced traders are concerned about their rightness, while professionals admit their emotions being able to master temper. Successful traders only acknowledge those factors that may help or prevent from obtaining profit. It is very important to stay aware of processes on the market; however, it is necessary to separate private life from trading. Considerable exertion may result in mental disorders and physical exhaustion. Professional traders promptly react to market processes, as it is the only way to earn money for them.
6. After losing money while trading a loser starts buying new books or trading systems and following their concepts. In the meantime, a professional analyses the incident and edits his methods with a regard to the analysis results. More successful trader does not switch to another trading system at once; he/she rather does it after realizing that the old one does not work properly. Successful traders always stick to their developed system using only a few trading strategies usually.
7. Traders without a considerable trading experience often try to repeat trading techniques of famous traders. At the same time, professionals consider all possible strategies, including ones of famous traders, but use them only in case they suit their trading style. Trader's individuality, a knowledge about the market and own trading system are much more relevant than the achievements of famous market players.
8. Often inexperienced traders do not notice numerous factors that could help them to derive profit. Profit of each trader determines the amount of funds in circulation, that is clearly realized by all experienced traders. The amount of money flowing into Forex must exceed the one flowing out, and this is what every trader has to take into account.
9. As a rule, all beginning traders losing any opportunity to get profit really take it too hard, while more successful traders take it easy. Trading is a pleasure for them; however, they take it absolutely seriously. Psychiatrists argue that an excessive seriousness makes person more vulnerable to diseases.
Both successful and losing traders take Forex trading as some sort of a game.
If we compare trading with a game, for example, bowling, newbies realized that strikes thrown by experienced professionals without any visible effort are results of much time spent outside the "big game". As in sports, trading implies numerous internal and external factors. You should be extremely serious about each of your trades. The difference between a professional and a beginner is that the former follows an accurate trading strategy and the latter takes trading as a game.

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