Day trading refers to forex strategies to buy or sell the same day. Many day traders leverage large amounts of money to exploit price movements in highly liquid currencies.The day trader is looking for two things in the store: the liquidity and volatility. Liquidity to enter and exit stock at an affordable price (i.e., tight spreads and low slippage). Volatility is simply a measure expected price range on a daily basis an area where a day trader operates. More volatility means more profit or loss.
Once you know what kind of actions that you are looking for, you must learn to identify the possible entries. There are three tools you can use:
1. Intraday candlestick charts. - Candles provide an analysis of the raw price action.
2. Level II Quotes / ECN - Level II and ECN give a look to the orders as they occur.
3. Real-Time News Service - News moves stocks. This tells you when the new batch.
The identification of a target price depends largely on your trading style. Here is a brief description of some trading days common strategies:
Scalping is one of the most popular strategies which is based on selling almost immediately after a trade becomes profitable.“Fading” is based on selling after rapid moves upwards. This is based on the assumption that the currency is overbought. Early buyers are going to take profits by selling and the existing buyers may be scared out. Although risky, this strategy can be extremely rewarding.
“Daily pivots strategy” is based on your previous analysis of the market. This strategy is to buy at the low of the day and sell at the high of the day. Of course, this two extreme values are hard to predict.
“The momentum strategy” is based on news releases or finding strong trending moves supported by high volume. The momentum trader buys on news releases and ride a trend until it exhibits signs of reversal.
Day trading is a difficult art to master. In fact many surveys shoe that more than 50% of those who try to implement it go bankrupt(see Ten Ways to Lose Your Money in Forex) .
However, the above forex strategies help you to create a profitable combination of strategies, and with enough practice and consistent performance evaluation, you can significantly improve your chances of beating the statistics.