There are many different styles and strategies to trading securities, one of them you might have heard is “Intraday Trading”.
Intraday trading is a term used for traders that make many trades over the course of one trading day.
As prices of a security such as currencies fluctuates on a daily basis, an intraday trader aims to profit from the fall or rise in the price.
This type of trading style is preferred by short-term traders looking to make trades within the period of a day.
Each day for an intraday trade is a new one, the slate wiped clean at the end of the previous day.
The following article will break down what intraday trading involves and how you can apply it to the forex markets.
What Does Intraday Trading Involve?
For those that are interested in being an intraday trader it would be advised to do some research and make sure its right for you.
You will fully need to understand the commitment, emotional stress, and risks that can be involved with intraday trading.
The next step is choosing which securities market you wish to trade such as stocks, commodities or the forex markets.
A trader will then need to spend time to study and analyse the markets and historical data.
Most traders will use tools like trading platforms such at Meta Trader 4 to give them a bigger picture of what has been happening in the markets.
Although fundamentals are the main driving factor, a trader will also use technical indicators to help enter the markets.
Intraday traders will observe the most important derivation which is the high and low price spread of that day.
When studying charts, intraday traders will tend to use 5 minute, 15 minute, hourly and daily time-frames.
There are pros and cons to intraday trading which you should be aware of.
Pros being that you will not have trades impacted by overnight news, being able to use tighter stop losses and increased leverage.
The cons are that your trades are not given a sufficient amount time to increase your profit and due to high frequency of short trades, you will incur more commission costs.
How To Day Trade The Forex Markets
As mentioned previously, the price of a security fluctuates over the course of a day.
It is important to understand the fundamentals of intraday trading in order to make profit from these fluctuations.
There are a number of strategies used by intraday traders such as scalping and news based trading.
Scalping involves placing multiple trades for a very short period to take advantage of market fluctuations.
With scalping, each trade placed is small yielding but with high volume to increase profits.
New-based trading aims to trade opportunities from heightened volatility around news events.
Traders using this strategy will be follow economic news reports as an indicator of short-term market movement.
Which ever strategy you use for intraday trading you should always have a consistent plan.
Below are a few basic tips to take note of when intraday trading:
- Choose securities with highly liquidity as intraday traders must sell off their positions at the end of the day.
- Trade after the opening range has been established during the first hour.
- Place only two to four trades at a time to make it easier to monitor.
- Create a research watch list..
- Have fixed entry prices and target levels.
- Make sure you have a stop losses to limit losses in case the price moves unexpectedly.
- Once you have met your target goals for that trade then withdraw your profits.
- Don’t go against the market trend.
Each trader is different and one strategy might be suitable for one trader and not the other.
It is important to evaluate each trading strategy and see what best suits you.