Day trading is without a doubt the most popular way of trading used in the financial markets. Even outside of them, the image that is portrayed of a trader is usually of day traders speculating on how stock markets and commodities will move in price during the day. This image has been established by the media, and various movies that have been created with famous day traders as their subjects. (Anyone remember American Psycho? The infamous Patrick Bateman was a stockbroker).
No doubtedly, the day trading experience is what most people are drawn to when they are thinking about making the transition to becoming traders themselves. This is the case across the various subdivisions of the financial market, including stocks, commodities and yes, of course, Forex. The day trade experience is by no means the only one out there. There are groups of traders who practice either shorter term trading like scalping and of course longer term investors who are more focused on trading their money over larger time periods, like weeks or even months. There is no wrong way to go about trading, in terms of which time period you want to trade with, but it should be noted that each time period offers its own advantages and disadvantages. For the shorter time periods, the trader of course has many more opportunities to make money in the markets. The signals however for these time frames can be volatile and not certain. This is why many traders choose quick moving strategies like scalping and pip hunting to gain profits in this market. Using this way, the trader will have to make several trades in a day. This method is great for those who wish to pursue trading Forex as a career, as it allows them to stay engaged in the market the whole day, and to take advantage of the price variations that happen throughout the day.
On the other hand, long term traders have the advantage of greater certainty created by having clearer trend lines and pullback levels. For this method, traders also are not obligated to spend hours in front of the trading charts (if executed properly). This is because the larger time frames do not show market noise (the volatile price spikes and drops that do not show clear trend) and therefore the amount of signals that they give are much lower than the shorter time frames. This is perfect for those traders who wish to trade on a part time basis along with having their main career.
The forex day trading systems that are available in the markets usually offer a balance in the advantages offered by both short term and long term trading. Depending on the forex day trading system chosen, the trader may have the balance of a relatively high frequency system (where he has several trade signals during the day) and also some of the stability that the longer time frames offer, by following the larger trends visible in the market.
Choosing The Best
The best day trading forex system is not one that will be applicable to the needs of all day traders in the financial market. This is because the best forex day trading systems are those that cater to a trader’s specific trading goals, and suit his trading characteristics. What we mean by this is that a forex day trading system should be profitable to meet the trader’s profit goals, and also suit his style of trading. For a trader who is impatient and loves the thrill of micro-term trading, then a long term swing strategy will not suit his trading style, and although in the long run, it may be profitable for him, the strategy will most likely make him frustrated. As he will most likely not be patient enough to allow his trading positions to play out to completion. That being said, a proper forex day trading system should satisfy a few characteristics.
Firstly, the best forex day trading system for a trader will have an element of trend analysis in it. This means that this mostly applies to technical analysis traders. One of the best tools to use to analyse trends are indicators like moving averages. The better option is to learn how to read price movements by themselves, this is particular so for traders who use Japanese candlesticks on their price charts. Being able to analyse these Japanese candlesticks (price movements) by themselves is extremely helpful, as candlesticks tend to make specific patterns before major price movements that a trader can take advantage of if he knows how to identify them. Used together these methods make identifying potential trends, or reversals very easy.
The next thing that only the best forex day trading system will have is the proper pre-trade zones for entry and exit of each potential trade that the system identifies. Now, don’t get confused. This simply means that the system will have a way to identify potential entry and exit points of the trade before the trade is executed. Now for this part of it, many traders simply use their eyes and make judgements as to where they think they should enter or exit a trade. This is a huge mistake. The best way to determine entry and exit is by using indicators like the Fibonacci retracements, that use mathematical ratios to determine the percentages most likely for price to retrace to. This means you know essentially the areas most likely where price will move up and down. This makes it simpler to plot a proper entry and exit point, without overestimating or underestimating.
Lastly, and this is not necessarily something that we observe in ready made systems, but a forex day trading system should have an element of money management strategy in it. This is usually not something that many day traders discuss, but the truth is that a money management strategy is essential to any sort of long term success with trading. This applies to all types of trading like stocks, commodities, precious metals, and of course Forex.
The best forex day trading systems are those that take the time to integrate that risk management element with the overall profit making strategy. This means that a risk plan is integrated into every position or every trade taken in the market by the Forex trader. The combination of the risk/money management strategy and the profit making strategy develops into a wholesome forex day trading system that any trader can employ in order to find success. This combination will allow the trader the best of both worlds as he will have the ability to choose and identify the most profitable trades to execute them, and he will have increased his potential profit making ability while decreasing his possible loss value. (This happens by employment of a risk;reward ratio, where it is recommended for traders to at least look for double the amount of the risk that you are willing to endure.)
So What is It? – The Best Forex Day Trading System?
The answer is no one can truly say that with certainty. This is because this type of question is subjective. Not all traders are the same. There are uniquenesses between them that dictate that the best forex day trading system for one trader that suits his particular goals and risk appetite would be devastating to another trader’s particular goals and would ruin his trading profitability and ultimately his trading career. A trader would consider his own unique objectives within the trading environment, and then construct the best the best trading system that would suit him, based on the predeveloped options available within the financial market. An example of this would be a Forex trader who chose to follow the 20 EMA trading strategy, using support and resistance lines, and japanese candlestick formations as signals for upcoming entries, and then tools like the Fibonacci retracement lines to properly plot the entry and exit points of the trade. From this, the trader would calculate the appropriate risk (therefore the position size ie. lot size) of the trade, based on his risk:reward ratio and his risk appetite. From this we can see the three elements of the forex day trading strategy: the identifying of profitable signals, the confirming of entry and exit points of the trade, and lastly, the element of money management strategy. With these focus points it allows anyone to mix and match their strategies with the various indicators and other trading tools that would suit their specific trading styles and preferences. This is applicable to all traders regardless of their way of style of trading and the area of the financial market that they participate it. (Whether stocks or commodities, the principle is the same.)
So what should a new trader do? Practice. In this case practice makes perfect. A new trader can only figure out his unique trading style and preferences based on practice so that he gains experience with the various styles and methods available so that he can form an opinion. The same goes for developing that forex day trading system for himself. Practice will make perfect in any case.