Last Updated on 29th July 2016: In this article we are going to go through the top daily forex trading strategies. Elite Forex Trading has always taken a general negative view towards day trading for a couple of reasons. The first is that many people lose a lot of money on this type of investing. They rush in to quickly and get hammered by the markets and end up losing a lot more than they bargained for. Leverage can make this 100 times worse as well (literally.) The second reason is there seems to be a lot of negativity and scams around in the day trading industry. For example courses offering to teach you how to make “£300 / day in only 42 minutes”. The strange thing is I’ve seen people make 10 times this amount learning the correct techniques, just they spend a lot longer studying the markets than an hour!
So with those points in mind I’m going to run over some of my top tips in regards to day trading. If you are truly ready to tackle day trading follow the steps below and complete each one. We will start with a couple of things that you need to have / remember before even creating a trading account. Also if you haven’t learnt the basics of forex trading in general yet, then I would highly recommend picking up our eBook (on the right) This goes through all the major points you need to know in an easy to digest way.
Table of Contents
5 Key Elements Before Making a Trade
Rushing into a trade is the easiest way to lose a lot of money, very quickly on any financial market, not least the forex markets. Instead I recommend working through the below 5 elements before even thinking about making your first trade. Combine, these should take about 2 weeks to go through but will save / make you so much more in the long run, you will seriously be thanking me!
- Read the 2 most influential day trading books of all time. These are Forex Made Simple by Alpha Balde and The Simple Strategy by Markus Heitkoetter. Seriously these are probably the 2 greatest books ever written on the theory and strategies behind making money through small day trades. If you don’t even bother to read the rest of this article, purchase these to books (linked above) and read them thoroughly. They will give you the platform to become a successful day trader in as little as a few weeks.
- Learn the risks – On any given day a trader should never risk more than 1% of their total balance (without leverage.) This means if you are looking to make $100 per day through trading you should have around $10,000 in your trading account, this means even if you experience a number of loss days in a row you will only be out 4-5% of your total bankroll. There are a number of great articles on this topic from WSJ, Oanda and Investopedia if you want to find out more about the forex trading risks.
- Ignore the hype – As previously mentioned there seems to be a lot of hype and BS in the day trading industry. A wide range of people who are all in the “top 5% of traders!” Ignore the hype. But more importantly ignore the individuals who claim they can help you generate “£3000+ in 1 day!” Instead follow the successful traders (through a social trader network.) To see the actual trades they are making instead of simply the ones they claim they are making. If you are looking for a forex forum for some other general discussions then I recommend either Forex Factory’s forum or Babypips, both are very active and have some good information on, but remember never only trust 1 person, always do your own research too!
- Avoid the mistakes – Investopedia did an article a while back titled 5 Forex Day Trading Mistakes To Avoid, in this article they go in-depth into the most common mistakes that even advanced traders make when they take their eye off the markets and start rushing into trades. This is the key to about 90% of mistakes – Rushing into a trade without during the adequate research. Another common one is simply listening to someone else who claims to be an expert! Always ask yourself, if they really were making £3,000+ a day through trading forex, would they really be spending an hour talking to me? Read the article and avoid all of the mistakes!
- Be Prepared to lose – My final tip before we get started is simply be prepared to lose in order to learn! The single biggest misconception people have is that you can make money easily through day trading! NO! You can make money quickly but not easily, once you learn the difference and you’ve done all of the 5 tasks above, you will be 90% of the way to becoming a successful day trader.
Our Recommended Platform
Once you’ve finished what I’d call “basic training” you are ready to begin the set-up for a trade. The 2 books mentioned above mention selecting a broker but they are slightly outdated in this aspect. I believe platform or broker selection is one of the key elements to becoming a successful trader, so I’m going to outline what I personally do. This isn’t for everyone but its what I do myself and personally recommend. I use etoro and recommend anyone new to sign up as well as you receive an awesome 10-50% sign up bonus (via this link.) Once signed up the process is relatively streamlined, simply confirm the account and deposit and your ready to go onto the next step (not the trade yet!) They have a very easy to use interface and offer good support if you have any questions or issues.
The key here is to simply make your first trade. When you start using a new platform some of the elements can be different or even difficult to understand. As you don’t want to waste any time when you have to make quick, sharp trades, I highly recommend making a test trade and just setting 5% stop losses. You can use this trade as a run-through for all future trades. If you have a bad memory then write down the steps you need to take and any confirmations the company asks you for. Obviously once you get the hang of this it will take seconds to go through the entire process, but you want to get used to the process before bigger money is on the line.
The Top 3 Day Trading Strategies Themselves
So here we are to the actual strategies themselves. I’m going to outline 4 strategies that I personally use when it comes to daily trades. I know there are a lot more than 4 core methods, but I personally believe these to be the most effective for both the beginner and intermediate trader.
The Fibonacci Retracement
This strategy is another take on the classic Fibonacci strategies. There are many based on the Fibonacci methods themselves but this one supports the idea that when a market is trending, one should go short. A number of individuals also use this strategy to identify support and resistance levels for their primary currency pairs that they are considering. The influx in activity at these resistance points means the Fibonacci retracement strategy becomes the most relevant method to identify a markets movement.
The candlestick strategy is the most effective and simple strategy for beginner traders. As the name suggests the method involves looking at charts in the shape of a candlestick. Below I’ve copied a quote from futuresmag going over the basics of what the main candlestick strategies contain.
For those not familiar with the details of candlestick charting, it’s important to go over the fundamentals. The difference between the open and the close is called the “real body” of the candlestick. The higher of these values creates the upper extreme of the real body, and the lower of these values creates the lower extreme. The amount the stock rose in price above the real body is called the upper shadow. The amount that the stock fell below the real body is called the lower shadow.
If the candle is green or white, it means the lower extreme is defined by the opening price and that the stock’s price rose during the period being charted. If the candle is red or black, then the lower extreme identifies the closing price, and the stock fell during the period.
Bollinger Bands & MACD
These are 2 different strategies that I’ve mixed into one for the purpose of this post. The Bollinger bands use charts to measure how volatile a particular currency pair is. This gives you a general overview of the price channels a specific pair is taking. I like to mix this strategy with MACD (moving average convergence and divergence) which is a relatively old and strong method for indicating where the market is heading. Using the initial Bollinger band set-up, one can add the MACD charts and use these as a outlet for traders to ensure they don’t get out of a trade too early or in fact buy into a trade too early. This is a great strategy for newbies who aren’t as experienced at reading the foreign exchange markets yet. The MACD is also the key detector in noticing and avoiding false breakouts.
The Bladerunner trader
Initially I saw this strategy on this site and have been using it ever since. The method itself involves using pure price action to find relevant entries. This works best alongside the candlestick method outlined above. Although you can mix this with a number of other strategies, but the only necessary one is a 20 EMA. The recommended time-frame for each trade is between 5-8 minutes and you should use short stop-losses on this method too.
For the more advanced trader you can begin to mix other strategies into the bladerunner, such as; polarity indicator which is a combination of the Bollinger mid band method mentioned above and the 20EMA method that we haven’t included in this article. Once you’ve mastered the basic bladerunner method I recommend implementing these to create an extremely powerful and profitable day trading strategy.
All of these strategies are just that, strategies. Until you actually take some action there’s no point in just looking for the information. Below I’ve embedded a really good video by Jason Stapleton showing how he makes live profits, its not glamorous like all those courses and “experts” show you it is, BUT it does show you how to make good money from realising a pattern, and as long as your stop losses are consistent and in the right place you should never lose more than 3-6 trades in a row.
Daily trading forex can be extremely dangerous and volatile, but it can also be extremely profitable as demonstrated by the video above. Below I’ve included a couple of guides to read once you’ve been through ours above. Remember the 5 key pre-trade elements. After you’ve mastered these you can set-up your forex trading platform and finally you can do your test trade. These are the “background” elements.
Once you’ve completed the test trade you’ll be looking at which strategy to implement, there is generally no right or wrong trading strategy, the right one is the one that makes you money! I recommend 3 more guides once you’ve completed the above.
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