Day Trading Basics

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Day Trading Basics

Before I start to give you day trading basics, I want to clarify what day trading is, and what it is not. It looks like many novice traders think that day trading is a strategy that uses daily charts (where every bar or candle is one trading day). First of all, day trading is not a strategy. Day trading is a trading style when all trading is performed within a day. Usually day trader analyzes the market early in the morning, and opens positions when the new business day begins, and closes his or her positions by the end of this day.

In FOREX day trading, the average day profit is around 60 – 120 pips, the average day loss is between -15 and -30 pips, and the average number of trades is 1 for a trend strategy and 2 – 3 for a flat strategy. Forex day trader usually determines the direction the market will move in the upcoming business hours, then opens a Buy or a Sell position, which he or she closes by the end of the day with a profit. If market moves against an open position, it is closed by stop loss and no more trading is done within this day.

If trader forecasts a flat market within the upcoming business hours, he or she can trade within the channel 2 – 3 times by 30 – 50 pips on average.

All day trading strategies are similar and all day trading basics are the same. You forecast, and then you open a position, then get your profit and exit the market. The difference is only in how a particular trader forecasts the price movement, and what currency pairs he or she uses. The rules of exiting profitable or losing positions may also differ.

Day trading is not investing. This is the reason why day traders never leave their positions open for more than 8 hours. They have to finish a day with a profit or loss no matter what. The ones who open positions as day traders, sometimes leave them overnight for 2 reasons. If a very strong price movement emerges, there is a likelihood that the market will move in the same direction for a few days, meaning it’s better to stay open in order to get the most out of the movement. The other reason is pure stupidness of a trader. If a trader opens a position and the market moves against it, the trader may remove the stop loss order and leave the position open for a few days until market turns around and the position can be closed without a loss. Such traders always lose their deposits at some point. Don’t be among them. Take your -20 pip loss and make +80 pips profit next day. You will be safer this way.

There is another type of day trading strategies I want to mention in my Day Trading Basics. To be clear, any strategy where a trader trades within a day and closes all positions by the end of the day can be called a day strategy, even if a trader makes 20 – 50 trades a day. Strategies that involve a lot of small transaction are often called scalping strategies. A trader utilizing such a strategy rarely leaves any position open for more than 10 minutes, and always gets away with 5 – 10 pips profit or loss, and always closes his or her day with a profit ranging from 10 – 300 pips. This type of trading requires an enormous concentration and special tools that help a trader to open and close required positions with a click of a single button. For most of regular people it’s extremely hard while for some it’s fun.

Now the simplest day strategy that I use every day to make my living…

  1. Choose EURUSD currency pair and a lot that uses 2% of your deposit per trade.
  2. Early in the morning at 7:00am EST check what europeans have done to EURUSD pair and notice where it started to move.
  3. By 8:00am it will be clear where the pair is moving to, so open a position.
  4. Set your stop-loss order to the previous extremum but not further than -30 pips. If volatility is high in the morning wait until the market breaks the channel and enter at the break point setting stop loss order to -30 pips.
  5. Set take profit order to +120 pips which is the average daily range of EURUSD currency pair. If a big movement happens, your large take profit order will be executed.
  6. Close your position when market flats out or by the end of the day at around 4:00pm.

 

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