The practice of day trading attempts to maximize the potential gains from an investment by concentrating on each day’s trading trends in a chosen trade transaction. This application to the foreign exchange market is known as Forex day trading.
There are several methods of Forex day trading, each focusing on different factors that will affect the potential gain or loss of an exchange transaction. Two examples of day trading strategies are continuation and reversal. The method of continuation focuses on possible breakouts – which are indicators of unexpected upward or downward spikes in a Forex unit, such as a Euro/USD value – and the trends of the units that are the typical criteria for market movement of any asset.
The reversal method concentrates on the trading ranges between the opening and closing of a market. This method is commonly used as a way to allow for a breakout by betting against it, while focusing on the extremes of the trends for a traded Forex unit.
Both of these methods are dictated by the hours that the trade markets are open for business worldwide. Forex day trading during the most active hours of any market will necessitate focusing on breakouts and riding trends, and so will require the use of the continuation approach. Contrarily, the after-market hours when exchanges can still be monitored will likely employ the reversal method, which will focus on both edges of trend ranges for the highest probability of advantage for the trader.
The success of either method of Forex day trading depends on employing the best possible analysis of allowable risk versus the expected and predictable reward. This is only possible if the trader has decided ahead of time how much of their investment they are willing to risk for how long to attain the estimated payoff. It is generally understood that these pre-determined points are vital in Forex day trading to maximize advantages and to avoid significant losses.
Factors that affect currency exchange rates across the world will affect Forex day trading practices that much more, as these types of transactions involve hourly upswings and downturns in currency values. Consequently, the trader who is interested in this type of currency trading will be required to maintain a more concentrated regimen of rate analysis during each selected market session.
Forex day trading risks can be offset somewhat by applying the principles of spot trading and forward trading. Spot trading refers to the practice of trading on a particular exchange rate transaction and closing the deal in one session. Any gains from the transaction will become final within two business days, and the risk of any loss will be negated at that point. Forward trading allows the day trader to move the transaction forward, either to the next day or weeks or months in the future. The trader can in this way attempt to offset the risk of negative trends or unseen breakouts by betting on future shifts in currency value differentials.
Forex day trading using any method will necessarily require the investor to be much more diligent, yet the potential for gains can be increased if the investor is willing to more closely monitor the markets and aggressively maintain their own pre-determined stop points.
