Reflections on Day Trading and Long Term Trading in the Forex Market

Many new traders often fail to make money trading forex because they are lured by the easy prospects of making millions of dollars and are confused over the hundreds of indicators and forex financial terms. With tons of data and indicators constantly changing, it can be difficult for new traders to grasp the underlying trends and that will lead to poor trading decisions.

Day traders are concerned with what happens in the market today. Your trades start and finish the same day. Not tomorrow, not next week and not next month, but same today. The job of the day trader is to capture intraday price swings. Depending on the system or trading method employed, this can mean capturing one intraday swing or various intraday swings.

As a day trader you need to capture various price swings during the day, your objective is focusing on the appropriate time frame chart and naturally your profit objectives will be much smaller than that of a swing trader (who places a single trade aiming for a much larger profit objective).

So, when placing several trades during the day it can be easy to drift away from your pre-determined stop loses. A day trader’s thought is – if I extend my stop loss just a bit I hope the market will turn around! Forgetting that Hope is one of the traders biggest enemies.

These little extensions of stop losses add up and suddenly without noticing you are losing more dollars per trade than planned making your risk/reward ratio turn against you.

The Challenges For Any Day Trader

One challenge for any day trader is to accurately predict the range when faced by:
Trillions of dollars traded each day, by millions of participants which include:
Central Banks, large and small managed funds, hedgers and individual speculators.

They all have different investment objectives. Some want to make money and some simply want to hedge their risk. How many of these pay attention to daily movements and ranges within the day?
Only a very small minority.

With such a vast and diverse trading base, support and resistance calculated within the day is bound to be a fruitless exercise.

Reason being that you cannot accurately predict volatility within such a small time frame and the vast majority of participants are not bothered about day trading levels. This means you are using meaningless data that has no validity.

Day trading is still the equivalent to flipping a coin and traders in this category lose all the time and never make money longer term.

Another problem with day trading is volatility takes them out all the time.
Support and resistance levels don’t hold as they should and day traders are stopped out with a huge number of losses.
These losses are small and that’s a good thing in trading, but because the stops are so close they have little chance of making money.
We all know that if you keep losses small and run profits we can become a winner over time.

Running profits is alien to day traders and they don’t get many!
They simply want to get a profit (any size) scalp the market and get out.
So you have a scenario where they cant and don’t win.

Most people who deal with day trading spend all of their time in front of the computer, watching the slightest change in the stock price. As the prices go up and down, the day trader must be alert as to when to sell his stock or wait for the moment to hold on it.

I think it boils down to a couple of really simple but important rules that too many new traders either don’t learn soon enough in order to save some of their trading capital. Or they don’t really understand the concepts. Let’s look at a couple of the major ones that you have to understand and have mastered before you can really hope to earn a living at this day trading game.

Since your job as a day trader is to capture intraday swings it is crucial that the market you are trading has enough movement to allow you to do this. It is also important that the market you are trading has enough liquidity so that order fills do not suffer from excessive slippage.

You have to select a market that its volatility is permanent and not a temporary occurrence. Since you are basing your trading method on catching intraday price swings you have to know that you are trading in the right place.

As a day trader volatility is your allay and you have to know that you can count on it every single day (or at least 90% of the days). Liquid markets will provide you with good order fills.

This is very important since you are aiming at smaller profit objectives and hence larger slippage will eat away more of your profits. When trading several times a day this adds up and can be the difference between success and failure.

Also, your profit objectives are obviously much smaller than the swing traders profit objectives. All this means one thing: every pip counts. You cannot afford to trade currency pairs with large spreads, if you do your profit will get eaten up to a point where you will not be trading with an adequate risk/reward ratio. forex day trading must be done with liquid pairs.

Long Term View Of Forex Trading

If you want to make money trading forex, start to take a long term view of forex trading instead of being the opportunistic investor.

In general, the forex market is easier to predict in the long term than in the short term. However, most new traders often lose sight of the big picture and instead concentrate on recent upward and downward trends. They get too caught up with the latest news and focus on the 1 hour and 4 hours charts believing easy money is made by seizing the right opportunity. That in my view is more like gambling and not investing.

Working smart to make money fast involves building a simple trading system you have confidence, in only focusing on long term breakouts and having the courage to let a trend run.
Most traders can’t do the above, that’s why they never make money fast and end up losing.

The big trends that yield the huge profits only come a few times a year in most currencies, since you’re trading to make money fast, you will do this if you wait for the right opportunities and milk the big trends for all their worth.

it takes immense courage to enter a trade and watch it swing back against you without the temptation to bank a small profit or move your stop too soon. If you have the courage to follow the big trends and take the swings you will be rewarded by making money fast and triple digit annul gains could be yours.

Remember that longevity in any trading market is the key to making money by trading. You should trade slowly over a long time with minimal risk, this is always preferable to frequent trade with too much risk.