Different forex day trading strategies

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Different forex day trading strategies

Day trading, also known as intraday trading, has many advantages. The most obvious is that trading positions are not affected by news that could negatively affect their value. Another is the ability to protect positions through tight stop loss orders. Stop-loss orders are instructions to close a trade when the market price reaches a certain price level. Apart from these reasons, day trading also offers learning opportunities for traders to develop their trading and analytical skills.

However, day trading also has its disadvantages. More frequent trading means higher commission costs, which can affect profit margins. Also, there may not be enough time for positions to see an increase in profits. This is why day traders use a number of strategies to help them get the most out of their trades. Here are some of them.

1. Roughness

Scalping is a strategy that day traders use to take advantage of minor changes in the price of a currency pair. It uses large position sizes for small price increases in a short period of time. The goal is to buy or sell a large number of securities at the bid or ask price and then quickly sell them a few cents higher or lower for a profit. Holding times are usually very short, and can range from seconds to minutes.

Remember that scalping is a very fast-paced activity, requiring good timing and execution. Traders who use this strategy often focus on smaller time-frame interval charts such as the one-minute and five-minute candlestick charts to gauge and make their trading decisions.

2. Chain-linked trading

Chain-linked trading is the process of trading in price channels. Price channels are defined by identifying levels of support (the price below which a currency pair does not go down) and resistance (the price above which a currency pair does not go up) and connecting them to horizontal trends.

The goal is to buy at the bottom of the channel (lower trendline) and sell at the top of the channel (upper trendline) for a profit. Traders often place stop-loss points just above the upper and lower trend lines to prevent losses from high-volume breakouts or other anomalies that could affect the price of a currency pair.

3. High frequency trading

High frequency trading is a strategy that uses advanced, powerful computer programs to execute trades. These programs have the ability to analyze markets and place orders based on market conditions. Orders can be fulfilled quickly, often in just seconds. This creates a huge advantage for traders, especially given the sensitive nature of the forex market.

It is worth noting that high-frequency trading is criticized. Using algorithms to make trading decisions removes the human judgment and interaction aspect during trading. This naturally creates an unfair advantage for merchants who do not have access to these programs.

4. Trading based on news

News trading is one of the most common strategies used by day traders. Basically, traders make decisions based on major economic news announcements. This can range from economic reports to global events that can affect the prices of currencies, stocks, bonds and other securities. Traders monitor the overall behavior of people before and after the announcements before making their trading decisions.

Remember that news traders also tend to hold positions for very short periods of time, as the effect of news and events on securities is often short-lived.

5. Trend-based trading

As its name suggests, trend trading is literally just following the movement of a stock or other security. This is a simple and common tool used by many early day traders. What they do is buy when prices are rising, and sell when prices start to fall. It is based on the assumption that prices that have been rising or falling for a sustained period will continue.

Trend traders must be smart enough to identify trends as early as possible, and know when to sell when they start to reverse.

6. Contradictory investments

Contrarian investing is a style of investing where investors go against market trends. In short, they sell when others are buying, and buy when others are selling. It is based on the belief that buying and selling behavior is based on fear and greed, which makes markets over and under priced from time to time.

Contrarian investors often have a good understanding of a currency's intrinsic value. This is done by spending a lot of time on research and analysis. They often look for buying opportunities in currencies that are selling below their intrinsic value. Although it may be re