The term day trading refers to a strategy that consists of buying and selling currencies during a specified one day time period that generally corresponds to the business day in the trader's time zone.
The object of day trading involves the repeated buying and selling of currency pairs for what the trader hopes will be a small profit. The process of taking many small profits during the day can add up considerably for an accomplished day trader.
One of the most obvious advantages of day trading consists of the fact that day traders will generally get a good night's sleep. By not assuming overnight exposure to the forex market, the day trader can usually relax after trading, with no open positions to worry about.
They also do not have to worry about paying spreads or points away due to overnight rollover swaps incurred at most brokers if a position stays open after 5pm New York time.
Nevertheless, traders with limited or no experience may find day trading to be somewhat hectic. As a result, they might fall into many of the common trading pitfalls to avoid, such as overtrading, and they might even succumb to stress.
Scalping
One of the most popular day trading techniques is called scalping.
This type of trading is similar to that employed by forex professionals who make markets to their bank's clients, except for the fact that the scalper does not make a two sided market and so they can choose their initial entry direction to suit their market view.
Scalpers typically get in and out of a trade in a very short period of time, sometimes in a matter of minutes or even seconds. The scalper is typically looking to get only a few pips out of the market for each trade.
Higher Volume in Each Trade - In order for a scalper to profit significantly from short term moves, a larger position must often be taken in order to make the trade worthwhile. A proficient scalper will typically be well capitalized in order to be able to take on larger positions.
Some of the advantages that traders might enjoy when implementing the scalping technique consist of:
Less Exposure to Risk - Because scalpers work with small price differentials and only hold positions for a very short time, their exposure to risk is significantly reduced provided they are disciplined about cutting losses.
Taking Advantage of Smaller Moves - The scalper generally takes advantage of smaller differentials in the market which allows them to profit from even the least of moves in quiet markets.
Hedge Trading on News Releases
Some short term traders employ the often high volatility surrounding the release of important economic data to trade in and out of the forex market.
Major economic releases from the United States might such data as Non Farm Payrolls, the Gross Domestic Product or GDP, Retail Sales or similarly influential economic news releases that tend to prompt sharp swings in the market if they come out different from what the market was expecting.
One strategy used to trade news releases involves the trader positioning themselves on both sides of the market using a hedged position. This would involve them both buying a currency pair and selling the same currency pair without netting the two positions.
They would probably establish this hedged position before the significant release comes out. Once the number prints on the news wires, they would then look to leg out of the hedged position as the market swings sharply in one or both directions.
Nevertheless, traders with limited or no experience may find day trading to be somewhat hectic. As a result, they might fall into many of the common trading pitfalls to avoid, such as overtrading, and they might even succumb to stress.
Scalping
One of the most popular day trading techniques is called scalping.
This type of trading is similar to that employed by forex professionals who make markets to their bank's clients, except for the fact that the scalper does not make a two sided market and so they can choose their initial entry direction to suit their market view.
Scalpers typically get in and out of a trade in a very short period of time, sometimes in a matter of minutes or even seconds. The scalper is typically looking to get only a few pips out of the market for each trade.
Higher Volume in Each Trade - In order for a scalper to profit significantly from short term moves, a larger position must often be taken in order to make the trade worthwhile. A proficient scalper will typically be well capitalized in order to be able to take on larger positions.
Some of the advantages that traders might enjoy when implementing the scalping technique consist of:
Less Exposure to Risk - Because scalpers work with small price differentials and only hold positions for a very short time, their exposure to risk is significantly reduced provided they are disciplined about cutting losses.
Taking Advantage of Smaller Moves - The scalper generally takes advantage of smaller differentials in the market which allows them to profit from even the least of moves in quiet markets.
Hedge Trading on News Releases
Some short term traders employ the often high volatility surrounding the release of important economic data to trade in and out of the forex market.
Major economic releases from the United States might such data as Non Farm Payrolls, the Gross Domestic Product or GDP, Retail Sales or similarly influential economic news releases that tend to prompt sharp swings in the market if they come out different from what the market was expecting.
One strategy used to trade news releases involves the trader positioning themselves on both sides of the market using a hedged position. This would involve them both buying a currency pair and selling the same currency pair without netting the two positions.
They would probably establish this hedged position before the significant release comes out. Once the number prints on the news wires, they would then look to leg out of the hedged position as the market swings sharply in one or both directions.