Author: Forex Pro Trader on 08 Nov 2012
Forex Trading is among the most lucrative online businesses in the world. That fact alone should make every trader understand that competence and not just the passion always plays the biggest role in determining individual trader’s success. There is no doubt that there are several fraudulent entities duping thousands of people daily and thus underscoring the need for proper Forex education and a knowledge of Forex Market Dynamics. As many do say, Forex Trading in an art as opposed to a science and being so dictates that players in the industries need to formulate strategies and counter strategies to survive in this high competitive market. Some techniques (strategies) are suitable for day traders as compared to long-term investor.
By description, day traders make their money through leverage (borrowing money to finance Forex Trade with the aim of making profit in the end) and selling short. The methods they use during trading on the other hand qualify as strategies. Even though there are a number of profitable strategies, some have proven more successful when correctly applied. Though most of the trading strategies can be classified into profit maximizing or risk minimizing techniques, a brief look into individual strategies, as discussed below, can prove helpful to a novice Forex trader:
The most popular and arguably most successful strategy is known as Scalping. This strategy involves the placing of many trades in a day based on the concept that it is easier to make profit on small trade. Profit is dependent on the price fluctuations witnessed a given day and on the notion that small profits do compound into large sums of money.
The main advantages of scalping are that little amount of money is needed and then there is the ease of utilizing the futures that a specific market offers. However, scalpers (as those using scalping strategy are commonly known) spend lots of time on computers thus risking their health. In addition, untrained Forex traders risk losing lots of money since scalping requires a proper understanding of the order flow and market structure.
Provided the trader has mastered the market trends, knows when to exit a position and understands how to use money to grow one’s account, they can try the high risk (fading strategy). The principle here is to sell Forex when prices are going up and only do the buying when the prices are deemed low. The associated advantages of this strategy are based on certain suppositions that these currencies are on high demand and that buyers stand a chance of making profit. On the negative side, this strategy is risky (as earlier on mentioned) since it is not certain that the prices will fluctuate as predicted.
Simply put, momentum strategy require the trader to observe the market trends carefully and only trade in those Forex that are moving towards a predictable and profitable direction. Most of momentum day traders are conversant with Scalping, Fading and Technical Trading (where the trader is focused on analyzing the market charts and graphs to help determine the appropriate time for selling or buying Forex). Fundamental and Swing Trading methods also do give a perfect background for momentum Strategy users by providing knowledge on Cooperate and long-term Forex trading techniques respectively.
Though observing Forex can lead to maximized profits, one must take precautions to avoid choosing a position before a momentum shift is established. Other pitfalls with this strategy include possibilities of one closing the position belatedly and failing to be keen on the changing trends on the screen may be due to eyestrain or tiredness.
A day trader can also profit from Forex daily instability. This strategy has the simplest principle that is to buy Forex when the prices are low and only sell when the prices have gone high within the day. The main shortcoming of this strategy would be the unpredictability of the daily Forex prices. A good illustration would be buying Forex at what is considered to be the lowest price while expecting the prices to go up only for them to drop even further in the course of the day.
A successful day trader would always employ three main techniques to survive the market and maximize profits. First is finding the target using the strategies explained and determining a Stop-Loss Order (an order placed with a Forex broker to sell Forex when certain price is attained with the main aim of minimizing loss). Evaluating the Forex performance in addition to the two techniques mentioned can ensure successful Forex day trading.
Tags: Daily Pivots, day traders, day trading techniques, Forex education, forex scalping, forex traders, forex trading, forex trading techniques, Momentum strategy, successful day trading, trading strategies