Best Daily Trading Forex Strategies – 5,000 Word Guide
Last Updated on 23rd May 2018: 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
- 1 5 Key Elements Before Making a Trade
- 2 Our Recommended Platform
- 3 Test Trade
- 4 The Top 3 Day Trading Strategies Themselves
- 5 Conclusion
- 6 The Top Short Term Forex Trading Strategies Outlined
- 7 The difference between long and short term trading
- 8 3 Key Short-Term Forex Trading Strategies
- 9 Strategy 3 – The Morning Star
- 10 Conclusion
- 11 15 Minute Forex Trading Strategy
- 12 The Top 19 Forex Trading Signals For Beginners
- 13 Long legged Doji
- 14 Tweezer Tops and Bottoms
- 15 Recommended resources:
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.
The Top Short Term Forex Trading Strategies Outlined
Forex trading is generally split up into 3 categories. Short term, which is any trade that lasts less than 24-48 hours. This can be as little as 5 minutes or as long as 2 days but it is generally referred to as short term forex trading. Medium term is from 2 days to a week or 2, this is also called swing trading and can be highly effective for the beginner trader. The final type is longer term trading, this is something I’m personally not adversed in, but this is any trade that lasts longer than 2 weeks, usually longer than a month and up to 2 years.
In this article I’m going to focus on short term trading, or day trading. I’m not sure why but day trading seems to have a very negative perception to traders. This is probably due to the number of scams out there claiming you can make £10000+ a day without much capital. All of these are obviously BS, but the truth is you can make a good living and slowly grow your bankroll with smart day trading strategies. Below are a few of these I personally recommend. We’ve done a huge guide on day trading already which you can find here.
The difference between long and short term trading
Don’t get confused between long term forex trading and a “long” in forex trading. They are 2 completely different things. Long term trading as I mentioned above is taking out a position with the intention to keep it for a long period of time. Short term trading is when you are looking for the market to move quickly and as a result make a profit in a 5 / 15 or 60 minute window. Generally traders should start with longer-term trading to get used to the fx markets themselves, but once adversed in the basics you can make money trading in shorter time frames.
3 Key Short-Term Forex Trading Strategies
The strategies I’m going to outline below are simple strategies almost anyone can implement into a trading plan. Remember to sign up to a broker with good tracking and where you can draw your own support and resistance lines to avoid any unnecessary mistakes. Once you have done this, I’d recommend starting with a demo account for a couple of days to get used to the process and the broker, then when happy with the software and interface itself, make a deposit and get started with the strategies below. Remember to also do your own research before even thinking about starting! Never listen to 1 single expert, always get as much information from reliable sources and then make your own decision.
Strategy 1 – The Hammer and the Hanging Man
The hammer and hanging man are candlestick strategies based on a market reversal. When looking for a hammer or hanging man you should know the resistance levels. Forex traders always over complicate things and candlestick patterns work extremely well when the correct support and resistance levels are drawn. The first step is to draw the correct levels in, there are a number of guides on this, such as this one, so I’m not going to go into this now. The next step is to understand what a hammer and hanging man is and then when to trade.
So a hammer is a bullish reversal signal. A hanging man is the exact opposite and is a bearish reversal signal. These signals are generally quite reliable, and can lead to a few pips per trade, with a high % of winning trades.
As you can see in the graph right, a bullish hammer occurs and the next movement was up (both straight away and longer term) this is a 15 minute chart but it shows the general direction a hammer has.
There are a couple of requirements for hammer or hanging men, but the number 1 is that the candle must have a large lower shadow, generally the larger the better. With a small or ideally no upper shadow. This shows a quick and reliable change in the market.
Strategy 2 – Bull and Bearish Engulfing Patterns
One of my personal favourite short term trading patterns as they are extremely strong signals that the market is reversing. This is a 2 candlestick pattern. This is where we are looking for the first candle to have a large real body (for example a bull candle.) The next candle should be the reversal of the first and should be even larger and hence engulf the first candle entirely. This works both at resistance and support levels, and your first step again should be to draw these levels in and when you see the second candle completely engulfing the first, you should make your trade. The image below shows both in action.
Strategy 3 – The Morning Star
The morning star is a 3 candlestick pattern. It is also a bullish reversal signal. The candle is a large bearish candle, followed by a small candlestick of any type, ideally this would be a dojo and if it is then the signal strength is increased. The 3rd candle is a large bullish candle that closes above the midpoint of the initial candle. We would look for this in the downtrend. Generally a strong candlestick pattern as the market has tested the support level and failed to break through and hence will usually return to a higher support level.
These are some of the basic strategies I use on a day to day basis when focusing on short term trading. I like to look at the 15 minute charts for these patterns and make quick 0.5% account size trades on the positions I am confident about. Remember the key in day trading (and forex trading in general) is to be patience and look for the pattern, don’t rush into trades and don’t over analyse positions to try to talk yourself into or out of a trade. If you set correct stop losses and take profits at the correct level there is no reason why you cannot become a profitable forex day trader. Thanks for reading and if you enjoyed the article remember to share and like.
15 Minute Forex Trading Strategy
We’ve done a lot of talk about forex trading strategies for beginners on our blog, but today I’m going to outline a specific method that only takes 15 minutes to implement. This is a very easy method indeed but you do need to know the basics, such as the terminology and how to actually conduct a trade. If you don’t know this yet, simply pick up our ebook (sign up right) and read before continuing in this article. Let’s get to it.
When you start your forex trading career, whether you are trading £10 or £10 million, the most difficult thing to do ISN’T to make your first profitable trade. Most people believe it is, but they are 100% wrong. The most difficult element is repeating the system you used to make this trade profitable. If you can repeat the system and make a profitable trade 60% of the time, you will be laughing all the way to the bank.
Below are the strategies I recommend for beginners. All can be used in as little as a 5 minute period and hence the name of the article – 15 Minute Forex Trading System For Beginners! Although this is for beginners its important to remember that these strategies generally work, no matter how advanced you are! So what I would recommend is looking through the systems and strategies below, in full, and then implementing the ones you are familiar and comfortable with.
The Top 19 Forex Trading Signals For Beginners
Doji Forex Strategy
Below is a screenshot from the video itself. It shows the basic principle of the Doji. The Doji is the “+” element indicated in the screenshot and is very common in currency pairs. The Doji principle was invented originally in Japan to track the movement of the rice market. But nowadays a Doji candlestick can be the easiest way for a beginner forex trader to make their first profitable forex trade.
A Doji that occurs in the middle of a support/resistance model should never be traded. That’s a quick way to lose a lot of money. But a Doji that occurs on a support level should be traded, as is the case with a doji that occurs at resistance. Although the screenshot above over simplifies the charting model, the majority of markets will have support points very close to each other, giving it the candlestick look.
In the above example if the instead let the market come to you, wait for a close below the Doji low and then open your short position (in the screenshot above) or long if the Doji occurred at the support level.
Stop Losses – When placing your stop losses you need to answer 1 simple question. At what price was I wrong? And hence should I get out. In the screenshot case above, a candle close above the Doji high would invalidate a reversal signal, and hence your stop losses should be placed slightly above this level. Such as below.
A Dragonfly Doji forms when a sessions open and closing prices are at or near the session high. It is a bullish reversal signal, so we will only look for it in a down-trend [image right from onlinetradingconcepts.com] Generally a dragonfly doji indicates indecision in a market. Meaning a bull or bear market was active in the start of a session before being pushed back to the starting price by the end of the session. This makes the Dragonfly like image on the chart and hence the name.
Although a rare signal, a dragonfly Doji usually means a trend is about to change.
Gravestick Doji – The gravestick Doji is the exact opposite to the dragonfly Doji.
Long legged Doji
A long legged Doji is a candle that had the same open and closing price in a session. This means it has very long shadows on both sides. This candle signal shows complete indecision in the market. If you see this signal on its own you should not make a trade as there is too much indecision in the market. Candlestick values are only valuble when looked at in the context of the pair. A Doji in the middle of a range is something you shouldn’t trade on. A Doji on a support or resistance levels is something that can be traded at, although additional research should be made. [image from stockcharts.com]
Generally Doji’s show indecision in the market and hence a potential change in the direction a curency is heading. Below we will talk about the exact opposite of a Doji.
A marubozu is the exact opposite of a Doji. This shows total conviction in a market’s direction. [Image from incrediblecharts.com] This means that a Bullish marubozu makes the session’s opening price the low price. The closing price is equal to the sessions high. A bearish marubozu is the opposite.
The marubozu candlesticks don’t have any trading implications on their own, however they can be helpful when reading certain situations such as breakouts or reversals.
As the price breaks the resistance level the bullish marubozu shows there was no selling pressure by the bears and hence the larger probability that the breakout has been successful. A bearish marubozu at resistance could mean a complete change in the market trend, leading to further decline of a price.
A hammer is a bull-ish reversal signal. A small real body, a small or no upper shadow and a large long lower shadow. For it to be an official “hammer” the lower shadow has to be at least twice the size of the upper shadow. [Image from Dailyfx.com]
As this is a bull signal, we will only look for it in a down-trend. This is how a typical hammer looks and is usually a signal for a reversal in a market. An even stronger reversal signal is where bull has managed to push the hammer signal above the sessions open, and close at sessions high. A hammer seen at support is a very strong reversal signal..
The Hanging Man
The hanging man is the exact reverse of the hammer and appears at the resistance of a price. Generally the hanging man is seen as the opposite of the hammer and hence you should expect a price reversal but remember that the hanging man forms the same way as the hammer, so after the price has been trending up for a while, bears start to push the price lower, but bulls manage to push the price up closer to its open. So this doesn’t actually show the market is ready for a price lowering. Generally I would personally avoid trading on a hanging man, or use very tight stop losses if I did decide to trade.
A shooting star is a bearish reversal signal. It has a small real body, very small or no lower shadow and a long upper shadow (at least twice the size.) SS forms when bull pressure is rejected at a high when bears start to push the price down. The reversal signal gets even stronger (similar to the hammer concept) when the bears push the price lower than the open and close at the sessions low.
Similarly to hammer, shooting star has its own twin at the other side of a market. This is called an inverted hammer and can be seen during a down-trend. And again similar to the hanging man this is generally a signal I avoid as its considered a reversal signal, but when you think it doesn’t actually have the traits with a receding market. When trading reversals we really want to see a change in the market, and not a “potential” change.
Bullish Piercing Pattern
The bullish piercing pattern is a 2 candlestick bullish reversal signal. The first candlestick is a long bearish candle. The next is a long bullish candle that has closed above the midpoint of the first candle. The higher the secondary bulls have managed to close the session the stronger the reversal signal. Note: Both candlesticks must have large real bodies. Small bodies or large shadows do not make a bull piercing pattern.
As this is a bullish reversal signal we will only look for it in a downtrend. [image from: TopStockResearch.com]
Dark Cloud Cover
The dark cloud cover is a 2 candlestick Bearish reversal pattern. This is the exact opposite of a bullish piercing pattern and usually leads to a reversal. The second bear candlestick must close below the first candlesticks mid point, the lower the price is pushed the stronger the reversal signal. Both candles must have long real bodies. These can only be formed in up-trends and not downtrends.
Bullish Engulfing Pattern
Is a 2 candlestick bullish reversal signal. The first candlestick is a bearish one. It doesn’t need to have a large real body, but the signal is stronger if it does. The second is a long bullish candle that completely wraps around or “engulfs” the first candlesticks real body. Both candlesticks can have small shadows too, the important element is a large real body. This is a very strong reversal signal. Not only does the second candle stick show a change in the marketplace, it closes above the previous sticks open. The signal gets even stronger if it wraps multiple candles. We will only look for this in a downtrend.
Bearish Engulfing Pattern
This is the reversal of the above pattern. We should only look for this in an uptrend. Both signals are very strong and should be traded on.
Tweezer Tops and Bottoms
Is a 2 part bearish reversal pattern. It consists of 2 candlesticks that have approximately the same height. Technically tweezer tops do not need to have long upper shadows, but the signal is stronger if they do. Generally the longer the length of the upper shadows, the strong the signals. This is where the second candlestick closes near or at the sessions low. Candlesticks can also be reversed. Tweezer tops is a bearish reversal signal so we will only trade it in an uptrend. Tweezer bottoms is a bullish reversal signal. This is a strong reversal signal as any time the support or resistance level is tested without a breakthrough, it gets stronger. [Image from OnlineTradingConcepts]
The Morning Star
The morning star is a 3 candlestick bullish reversal signal. The first is a long bearish one. The second candlestick is a small candle perfectly it would be a dojo. The third is a long bullish candle that closes above the midpoint of the first candle. As this is a bullish reversal signal we look for it in a downtrend. The signal gets even stronger if the 3 candlestick is a bullish engulfing candlestick. [image from dailyfx]
On the other side of the trend, we can find the opposite signal which is called the evening star. The first is a long bullish, the second is a small candle (ideally a dojo) and the third is the long bearish candle that closes below the mid point of the first candle.
Three White Soldiers
The three white soldiers is a three candlestick bullish reversal signal. All 3 candlesticks have large real bodies and small or no shadows. The first candlestick is usually a bullish piercing or bullish engulfing candlestick. The second candle should be larger than the first and the 3rd candle should be at least the same size or bigger than the second.
Three Black Crows
This is the exact opposite of the three white soldiers system and hence a bearish reversal signal.
Although both of these signals usually occur too quickly to profit from, they can be excellent triggers for telling you when to get out of any existing positions you have.
As with all of the candlestick signals displayed above, these are valid only at the support or resistance levels.
Three Inside Up
Is a three candlestick bullish reversal pattern. The first candle is a large bearish candle. The second is a bearish candle that closes at least at the mid-point of the first candle. The third is a bullish candle that closes above the opening price on the first bearish candle. [Image from FXwords.com]
As this is a bullish reversal signal we will only look for it in a downtrend.
Three inside down
As you’ve probably guessed this is the opposite trend. This is a bearish reversal pattern. And you should look for this in an uptrend.
The Rising Three System
This is a 5 candlestick Bullish continuation pattern. The first candlestick should be a long bullish candle. The following 3 should all be small bearish candles that fall within the range of the first bullish candle. The fifth candlestick is a large bullish candlestick that closes above the first candlesticks final closing price.
The Falling Three System
This is a 5 candlestick bearish continuation pattern. The first is a long bearish candle, and is the exact opposite to the rising three system. We should only look for this in an uptrend.
That’s all folks. If you had no idea what we just outlined then read this first!
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