Day trading for beginners (Complete guide)

阅读时间 ︰ 30 分钟

Among all the investment strategies that exist, day trading is a technique that appeals to many people who are looking to make money in the financial markets. However, the novice day trader does not start to generate profit overnight, and it can take a little bit of time before getting a regular income.

Indeed, intraday trading requires learning regarding many elements such as the stock market in general, technical analysis, fundamental analysis, or the trader's psychology.

If you are already comfortable with trading in general, it may be time to start exploring the concept of day trading, which lies between scalping (short term trading) and swing trading (long term trading) in terms of investment horizon and risk taken.

What is forex day trading – Definition

Forex day trading represents the act of buying and selling currency pairs, but only within the same trading day or session. Day trading can take place in any market but is commonly referred to in the context of either forex trading or share trading (as well as indexes).

The day trader takes advantage of small price movements throughout the day. All positions opened during a trading session must be closed before the end of the day to avoid overnight (keeping a position open until the next trading session or the next day).

This phenomenon, which is used by forex day traders, usually involves leverage in order to generate a profit from either a bullish or bearish price movement. What day traders usually look for is a stock or a day trading highly liquid currency pair. Major currency pairs are often viewed as the best choice, as they have the highest forex trading volume.

Why do traders day trade?

In order to be successful as a forex day trader, you need to have a decent amount of capital, and a good amount of knowledge of the market you are trading. However, having this doesn't necessarily guarantee success. This is especially true when prices fluctuate extensively during intraday forex sessions.

Forex day trading is usually used in order to eliminate the need to pay fees for keeping a position open overnight. These fees are referred to as "Swaps". In some cases, the swap can be positive, and a trading strategy based on acquiring assets with positive swaps is referred to as "carry trading", however, this strategy is beyond the scope of this article.

Day trading is also used to avoid exposure to the risk of significant price fluctuations during the night, when traders are not able to monitor the market, or when it is closed. Therefore, day trading eliminates the risk of gaps in the market.

Day traders hold a lot of importance in the forex market. Indeed, even if forex day trading is a highly speculative activity, it keeps the market running smoothly. Forex day traders are the ones who provide the market with liquidity.

The best forex currency pairs for day trading

Major currency pairs are often viewed as the best choice, as they have the highest forex trading volume. When forex day trading, especially when beginning, it is advised to focus on the EUR/USD currency pair, as this pair usually has the most favorable trading conditions, and its price tends to fluctuate a lot.

How to day trade the forex market

The guide to profitable forex day trading could be considered controversial, as it is something that everyone has an opinion about. What everyone agrees on, however, is that it is a very risky activity and should only be considered by people who have a real knowledge of the market, and a clear understanding of its risks.

The day trader prerequisites - Day trading capital requirements

Professional traders must have a large amount of capital at their disposal, with adequate money management, including a good risk / reward ratio. Although day traders are looking for higher returns than conventional investors, it is always recommended to keep a reasonable position size (lots) when trading.

Mastering the financial markets for day trading speculation

A complete knowledge of how the market works and what the main determining factors of market moves are is vital. A successful day trader needs to keep an eye on both fundamental and technical indicators. One way to understand how the market works is to study a multitude of fundamental strategies and rules that have always existed. This will complement your vision of the market and allow you to identify opportunities.

The importance of discipline in day trading

In every aspect of life, discipline is essential, but neglecting it in day trading can lead to huge losses. Success on the market without discipline is practically impossible. You need to be able to monitor prices over long periods of time without making any unwise trading decisions. This is difficult and requires a lot of discipline. Sometimes, just seeing the movements you predicted on the market happen, without taking the trade can be very painful, but it is better to waste an opportunity than to guarantee a loss.

Day trading risks

Since markets can only move a certain number of points over a trading session, intraday traders usually use relatively riskier CFD trading techniques to increase profits. Most day trading strategies are price action strategies, and require the trader to be in front of his screen most of the time.

It is widely recognized that the smaller the time frame on which the trader works, the more risks they are likely to be exposed to. This is why day trading can be described as one of the riskiest approaches in the currency market. Less risky than scalping, but more than swing trading.

It is not really the strategies that traders use in day trading that are riskier. In fact, the overall logic remains the same for almost all time frames. It is rather the rules that become more difficult to follow in online day trading: they become merciless with those who do not follow them. Errors are more costly and have the potential to occur more frequently, as one may be tempted to trade more often.

Day Trading for beginners

The first step in becoming a profitable day trader in the forex market is simple and not very different from other trading strategies. As a beginner, it is advised to practice day trading with virtual money on a demo account to learn how the forex market works and how to get comfortable with the day trading approach before engaging in forex trading with real funds. This may seem too simple, but it is vital.

Another vital point for day trading is the choice of the forex broker (this point will be discussed in more depth below). The main attribute here is the spread and the commissions you have to pay. As a general rule, a day trader executes a few trades every day, and the cheaper these trades are, the more benefits they can receive from day trading.

Before choosing a broker, it is better to look for their offers and track all the possible expenses associated with day trading. You can also request a bonus to get the best deal for your first deposit. At Admiral Markets, we provide leading spreads with low commissions. All of the Admiral Markets' trading accounts are perfectly suited for day trading.

The possibility of losing your investment is high, so it is advisable only to use risk capital (money that you can afford to lose) when trading the forex market.

The forex market is usually traded using high leverage. Leverage has both the possibility of high returns and high losses, and should only be used with discretion. Being disciplined and not tempted by the illusion of careless speculation is one of the main success keys.

Becoming a successful forex day trader requires a good understanding of charts and how they work. You must also define your day trading strategy and stick to it.

Like any other investment activity, forex day trading involves a lot of risks, and appropriate money management principles should be used each time a trade is taken.

Although anyone can trade currency pairs, it is definitely not for everyone. You must have an appetite for, and an understanding of the risks and technical aspects involved.

Day trading techniques and strategies

There are different day trading techniques. Indeed, some are based on economic news, while others only rely on stock market openings. There is a multitude of day trading strategies, but whichever one you decide to use, make sure that it matches your personality and that the backtest made with a demo account reinforce your opinion on this approach. Therefore, you will be able to apply it on a daily basis with confidence and discipline.

Technical day trading analysis is essential for traders. There are two factors any trader needs in order to be able to trade, regardless of their strategy: volatility, and liquidity. These two factors are essential for all traders but are crucial for intraday traders.

Volatility is the amplitude of market movements. In short-term CFD trading, high volatility is mandatory. This essentially reduces the selection of financial instruments to major currency pairs and a few cross-pairs (minors), depending on the trading session. When talking about trading sessions, since volatility depends on trading hours, knowing what to trade is as important as knowing when to trade.

Liquidity is also important. If a long-term trader can afford to give up 10 pips here and there, the short-term trader cannot, because 10 pips can be his entire profit on a trade. This precision comes of course from the trader's ability to trade in the short term, but also from the liquidity of the market.

If there is low liquidity in the market, orders are not always executed at the desired price. This again encourages day traders to trade certain instruments and only during specific periods.

One or more strategies must be adopted to minimize losses and maximize profits. Since market conditions may vary from day to day, you must be able to follow them. A profitable day trader must be able to adjust his strategy to new market conditions. In order to be a successful forex day trader, a creative mind is needed.

Trend reversals in intraday trading

Counter-trend trading is probably one of the worst strategies to adopt, especially when it is used by uninformed traders.

This technique is also known as pullback trading. A counter-trend trader must not only be able to identify temporary changes in price direction with high accuracy, but also be able to predict the strength of these changes. Although it is not impossible, this requires a lot of experience and mastery of trading.

If you want to try this trading technique on a demo trading account, the daily pivot points can help you identify potential reversal levels.

Intraday trend trading

Trend trading is a simpler and less risky strategy to follow for a novice trader. The goal is to try to find fairly strong movements with high volumes and follow the trend. As the saying goes: the trend is your friend.

However, a high level of discipline remains necessary even for trend trading. Indeed, this approach requires to wait for the best opportunity to enter the market, and self-control is essential in order to remain focused and identify the right exit signal.

Day trading has often been described as the fastest way to make money in the market. However, what is usually left on the side is that it is one of the most difficult and risky approaches to master. As a result, many novice traders fail and lose their capital.

Forex day trading tips

If you are novice to forex intraday trading, here is one of the most important advice you can get: remain very cautious. First, you should try to prove yourself that you can be profitable on a regular basis for a few months with small position sizes. The more experience you gain, the more you will be able to trade with larger position sizes, always in the strict respect of your money management.

Develop a rigorous trading plan, and follow it to the letter to manage your risks properly. As mentioned above, forex intraday is riskier than long term investment, mainly because of the higher number of transactions. Day traders are under more pressure and must be able to make decisions quickly and accept full responsibility for their outcome. A trading plan is an absolute necessity for day traders.

Day traders are often exposed to economic news. When the market is waiting for macroeconomic announcements, traders should just refrain from trading, unless this is precisely the market conditions that their trading strategy requires. The idea is quite simple but important. Since you do not swim in rough seas when the weather is stormy, you do not trade in an unpredictable market in times of excessive volatility (which typically happens around major economic announcements).

Therefore, the conclusion is: even if you somehow succeed in knowing what news or number will be published, it is impossible to predict exactly how will the market react. Optimistic news can cause a market downturn and vice versa. Eventually, the market will return to its original trend, but until it does, the environment is not safe enough to trade.

Intraday trading with the economic calendar

Many day trading strategies exist, but despite the great variety, almost all follow a similar process and must take into account economic news.

It is therefore important to make sure you know when important economic news is published, in order to avoid unpleasant surprises or unexpected trend reversals!

When looking at the economic calendar, you should pay attention to:

  • The economic news impacting directly or indirectly forex currency pairs
  • The exact hours of publication in order to:
  • Trade the economic publication
  • Stay away from the market when the news is released or published

Both approaches are debatable, but in general, it is best to stay away from the publications. It allows traders to avoid participating in the impending chaos, and to be able to start trading again when volatility is back to normal.

How to learn forex day trading

The best and most efficient way to learn about forex day trading is to practice it on a daily basis. The first step is of course to adopt the most appropriate trading strategy for you. The most common strategies for forex day trading are scalping and breakout strategies.

The first strategy involves taking a lot of trades and monitoring 1-minute and 5-minute charts. The main goal is to get less than 10 pips or points of gain per trade while keeping losses at nearly the same level. If you do not know what a "PIP" represents, here is a brief definition:

PIP stands for "Percentage In Points". It represents the smallest change in the quotation price of a currency pair. Most pairs are quoted with five decimal places, except for the Japanese yen (two decimal places) and some other exotic currency pairs. The fourth decimal point in a price quotation is called a "PIP", while the fifth one is referred to as a "nano PIP".

If, for example, if the GBP/USD currency pair goes from 1.4558 to 1.4559, the difference would be 1.4559 - 1.4558 = 0.0001. The price would have increased by 1 pip.

Scalping is a fairly interesting approach for traders who have a lot of time at their disposal.

On the other hand, breakout traders are looking for large market moves, usually caused by price accumulations and various changes in the relevant country's economies. Such changes usually happen unexpectedly or via news releases. A breakout trader will thus open a position in the direction of the breakout (or breakdown) in order to generate a significant number of pips.

This is an effective trading strategy for those who follow economic and political events, but who cannot pay enough attention to the markets on an hourly basis. An intraday trader will generally execute far fewer trades with a breakout strategy than with a forex scalping approach. Nevertheless, it is an excellent strategy to consider and try by yourself on a demonstration trading account.

Technical day trading analysis

As explained before, intraday trading involves more risks than swing trading. There are lots of movements on the forex market or more broadly on CFDs throughout the course of a day. Trends are shorter, and many pitfalls remain.

That is why the CFD day trader starts the day with a forex chart analysis over several time frames. Thus, the trader can understand in which technical context the forex pair or the index traded is located. This is part of his day trading plan.

Why is it part of a routine? Simply to know what happened during the previous sessions, and to understand from a broader perspective where the market is and what is the long term trend.

Daily chart analysis

To perform an efficient forex chart analysis, one should look at a daily chart and answer the following questions:

  • Is the forex pair in consolidation?
  • What is the long term trend?
  • Is the current forex trend bullish or bearish?

Keep in mind that the long term trend is always more relevant than the one you take your trade(s) on.

Then, it is necessary to switch to a lower time frame to locate accurately key support and resistance levels.

Hourly chart analysis

Identify the support and resistance levels that will play an important role during the trading session, on an hourly chart (H1). These levels can also be used to identify bearish and bullish scenarios, such as:

  • A bullish scenario above the resistance level(s)
  • A bearish scenario below the support level(s)

Once the forex market context and the key levels have been identified on your forex chart, all that remains is to monitor your MT4 or MT5 trading chart, waiting for a forex trading signal in relation to your intraday forex strategy.

5-minute chart day trading

You can identify trading signals and enter the market using a 5-minute chart to:

  • Exploit the bearish scenario upon confirmation from the system used in your day trading strategy
  • Exploit the bullish scenario on confirmation of the day trading signals included in your system

If you are looking for the best indicators for day trading, you should know that Fibonacci retracements are widely used to strengthen the areas of interest in the forex market for the upcoming trading session.

Day trading stop losses

How to place a stop loss order in day trading?

Through your trading plan, you can set a stop loss corresponding to your maximum risk tolerance. Generally, between 1 and 2% is a reasonable level. It cannot represent more than the maximum amount you are willing to lose on a single trade.

Another type of stop is a mental stop loss, and this one must be respected by the trader when they feel or see that something is going wrong. It is important to be able to distinguish panic from good analysis in order to make the right decision at the right moment. This is why stop losses must always be set before opening a trade and not after.

Another money management strategy for intraday traders regarding the stop loss is to set a maximum loss per day, that the trader feels comfortable with and can be accepted financially and mentally. If this limit is reached, then the trader closes his trading platform and stays out of the markets for the rest of the day, until the following trading sessions. This approach can also be used from a weekly point of view.

Experienced traders know that negative results often come from emotional trading. Unexperienced traders, on the other hand, do not know when to stop. They often mistakenly think that they must recover from their losses before the end of the day, and this relentless effort to recover is rarely good for them.

Exceptions to all these rules are possible but must be managed rigorously, and the potential outcomes must be accepted. Good results should not be used to reinforce regular exceptions. Results should be considered as a good reminder of why these rules exist.

Finally, stop losses can also be subject to technical analysis rules, such as placing it above a resistance or a recent high, or vice versa in the case of a long position.

The day trader's organization

How to prepare a day trading session?

Let's start with a real example! Every day trader must have a trading plan. Here is an example from our live trading sessions with Admiral Markets:

  • Trading days: Tuesday – Wednesday – Friday

An in-depth analysis of a backtest can highlight less profitable trading hours for a particular trading strategy. Therefore, these hours should be avoided.

  • Trading hours: 3:30 PM – 4:45 PM

This is the period during which you can apply your trading strategy. It represents the period where your backtest gave the best results. The choice of the trading period can sometimes turn a losing strategy into a winning forex strategy!

  • Financial instruments traded: DAX 30 – DJI 30 – NQ 100 – EURUSD – GBPUSD

Several CFD indexes can be traded, such as:

  • CFD Dax 30 (the German stock market index)
  • CFD Dow Jones (one of the main American stock market indexes)
  • CFD Nasdaq 100 (also one of the main American stock market indexes)

Forex currency pairs can also be traded, such as:

  • The EUR/USD currency pair
  • The GBP/USD currency pair

This allows you to diversify your risk among different financial instruments and different strategies throughout the trading session.

  • Strategy used: Trend following – Price Action (support and resistance levels)

To do intraday trading, other day trading indicators can be used to develop the best day trading strategy, such as moving averages (simple or exponential) for example.

Day trading strategy – Trade review

Independent traders ensure that they have made no or few errors during his forex trading session:

  • Are there any positions they shouldn't have taken?
  • Did they follow his strategy and trading plan to the letter?

Your intraday trading strategy and positions need to be monitored and evaluated. It is essential to ask yourself these questions (mentioned above) in order to remain disciplined and in control of your trading strategy while continuing to improve your ability to execute the plan you have developed.

The goal here is to make one less trading error every day!

Day trading strategy – MT5 Supreme Edition statistical study

There is more than one day trading strategy, but each one of them requires a statistical study in order to control better all aspects involved in day trading.

After his trading session, the independent trader analyses the statistics of his Admiral Markets trading account, and asks himself the following questions, not in terms of gains or losses but in terms of the proper application of his strategy regarding the current market conditions:

  • Was it a good day?
  • Was it a normal day?
  • Was it a normal day considering the trading system and backtest?

The question here is whether the intraday strategy of the independent trader is behaving normally, is it consistent with the usual results, or is it excessively negative or positive?

The aim is to analyze the strategy's behavior in order to judge its effectiveness and regularity without forgetting to see if the results are in line with the backtest.

The best tool to analyze the behavior of the trading strategy is the Admiral-Connect expert advisor (EA). Don't forget to analyze the results of your daily signals with this expert advisor available in the Supreme Edition of MetaTrader.

Source: Admiral Markets' MetaTrader 5 Supreme Edition

This professional tool is ideal for:

  • Having a visual on the "Cumulative profit" curve which represents the statement of accumulated profits and losses
  • Finding your account details and information thanks to:
  • The balance
  • The closed profits
  • The statistics of your forex trading account with:
  • The gains achieved in percentage (%)
  • The drawdown
  • The success rate of winning positions
  • The profit factor
  • The average length of a trade
  • The average number of trades per day
  • The composition of your portfolio

An analysis section is dedicated to customizing data for your positions with the "Analysis Chart" shortcut, under the "Analysis" tab, where you can analyze the elements of your choice in the form of online charts or even columns, including:

  • The percentage of winning positions compared to the percentage of losing positions
  • The profit factor of each CFD instrument in relation to another
  • The average number of pips on winning positions compared to the average number of pips on losing positions

Day trading brokers

Traders wishing to practice day trading wonder which day trading broker to choose. Here are the characteristics of a good day trading broker:

  • It is regulated (ASIC, FCA)
  • It offers low spreads and commissions
  • It doesn't re-quote the market and provides a fast order execution

Why choosing a regulated broker? Because if you make profits that you can't withdraw, it's not worth your time.

Brokerage fees are high when trading the stock market, especially in intraday trading. The less spread you pay, the higher the profits.

Finally, to be a profitable trader in day trading, you need a broker with very good and fast order execution. The order execution speed is essential.

Making a living from day trading

It is possible to make a living from day trading, as several professional traders show us. Nevertheless, it should be remembered that trading represents a variable source of income (as long as the trader in question remains profitable).

Thus, the management of variable income linked to trading performances is an essential aspect for any trader who wants to make a living only from his trading activity. Moreover, it is necessary to be aware that a significant amount of capital is needed. The stock market is an uncertain field, and money can be lost if the strategy chosen is not good enough.

It can also be noted that share or index day trading is an activity that can be very profitable, with sometimes more directional movements than in the forex market.

Crypto currency day trading

There is a lot of talk about crypto currencies nowadays. Crypto currencies are no different from other CFD instruments in terms of the methodology and discipline needed to execute your trading plan and strategy, day after day.

It requires to determine precise trading times and perform back tests to ensure that all chances are on your side. Crypto currency day trading is obviously more recent than forex day trading, but the trading rules are immutable and therefore can also be applied.

Scalping – Intraday high-frequency trading

Scalping is an approach that aims to achieve small gains on minimal price movements. Positions are held for a few minutes or seconds, and the trader makes his profit over a large number of trades during the day.

By nature, it is an intraday approach (because positions are supposed to be opened and closed during the same trading session) but it is considered separately because it requires greater risk-taking than day trading, where the trader can hold positions for several hours, as long as they are closed before the end of the trading day.

Scalping can be exciting – and at the same time, very risky. Traders must be able to make significant gains to compensate for the risk they undertake. The most challenging part of scalping is probably to close losing positions. A scalper cannot afford to wait for the market to reverse in his favor.

If you plan to become a scalper, you should be looking for very volatile instruments with high liquidity and the best order execution speed. If mastered, scalping is potentially the most profitable approach in any financial market. It is only the adjacent risks that prevent it from being the best intraday forex approach.

Day trading – Conclusion

Some may argue that forex day trading is a field that should be left for the people who have great experience, and who can be fully immersed in the activity. Others say that day trading is the best way to earn money in the stock market in the least possible time, and therefore is the best type of trading as a result of this.

Whatever the case may be, day trading is a field in which both pros and cons occur. While this type of trading is gaining in popularity with each passing day, it is only effective for people who are eager to commit a lot in order to succeed at it.

Most retail forex traders are in fact day traders. Becoming a day trader is an extensive process, and once you commit to it, you will have to go through a lot of trial and errors. Your discipline, stress resistance, and your confidence in your skills will be put to the test but once you succeed, you will be able to enjoy the benefits it brings. If you are ready and understand the risks, why not apply for an Admiral Markets trading account and see what day trading is all about?

About Admiral Markets

As a regulated broker, we provide access to some of the most widely used trading platforms in the world. With us, you can trade CFDs, shares, and ETFs.