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Many forex traders have adopted day trading as their preferred style. When you day trade, you only hold on to your position during the trading day and close it before the end of trading. Many day traders actually make multiple trades during the day, holding on to a position for just a few minutes or hours and closing in quickly to capture a quick profit. The basic principle behind day trading is that it is better to lock in smaller profits that will accumulate over time rather than trying to capture bigger profits with higher risk.
Here are some tips for making money in the currency market through day trading:
Practice good risk management. Every trader knows that whenever he is entering a trade he is also absorbing a certain amount of risk. The best traders are the ones who know how to manage this risk based on the amount of potential profit they expect. As a general rule, you should risk no more than one percent of your total trading capital per trade, although you can adjust this based on your particular trading style. But it is important to remember when deciding how much you will risk per trade is that accepting a higher risk does not necessarily mean you will enjoy a bigger reward. In fact, traders who risk too much on a single trade are bound to lose more in the long run, even if they enjoy some big profits.
You should never open a position just before a big news announcement. These announcements generally cause volatility in the markets and until you can detect a trend, you should not enter the market. Doing so may only result in big losses.
Stick to your trading plan. Many traders find when they trade in the markets that they feel emotion taking over and influencing their trading decisions. This often leads to disaster as they make decisions that they would otherwise avoid if only they were not acting on the basis of fear or greed. The best way to avoid this is to already have a plan and to stick to it, no matter what happens. If your plan is good then you will make a profit in the long run, even if you make a few losing trades in the short run. Change your plan only if it does not give you consistent returns.
Adjust your strategies based on the time of day you are trading. For example, at the start of the trading day, the markets may be more volatile. On the other hand, after lunch, trading activity may slow down and conditions become more stable. Make sure you use the appropriate strategy and keep your expectations realistic.
Learn when to walk away. One of the most common 'gambling' behaviors that forex traders give in to is to 'chase their losses'. This means that when you experience a series of losing trades, you will continue trading in the hope that conditions will reverse and you will be able to make back what you've lost.
Source: http://www.admiralmarkets.com.au
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