Online Forex Day Trading Strategies

There are a number of ways to make money online trading foreign currencies. In this article we look at online Forex day trading strategies. Day trading consists of buying and selling one currency pair for another via an electronic internet connection. A trader sets up a Forex account with a broker. He is able to leverage his investment capital substantially because of the usually small changes in Forex price structure. Online Forex day trading strategies include trend following, range trading, scalping, purely technical price analysis trading, and contrarian trading practices. The choice of online Forex day trading strategies will depend upon the market situation that confronts the trader, his or her skill set, and his or her degree of risk appetite or risk aversion.

Following the Crowd or Standing Apart

A usual first choice in online Forex day trading strategies is whether to follow the market or anticipate reversals. Trend trading uses the assumption that what is going up will continue to go up and what is going down will continue in that direction. A contrarian approach is one of the online Forex day trading strategies that look to market reversals for profits. However, in each case it is important to know when the market will turn. A trend trader will wish to exit his positions and a contrarian trader will want to buy or sell short according to expectations. In each case the Forex trader will anticipate Forex market reversal with the Doji candlestick or similar technical signal.

Fundamentals or Reading the Market

Online Forex day trading strategies depend on both fundamental and technical analysis of the currency pair that one trades. The relatives prices of two currencies are driven by balance of trade, employment numbers, monetary policy, politics, and world events. The market reacts to changes or anticipated changes in the fundamentals. For these changes in market sentiment traders use technical analysis tools such as the Morning Star in Forex trading. Although fundamentals determine ultimate pricing, any market goes through a period of uncertainty and inefficiency as it seeks a price consensus. It is during this period of volatility that many Forex traders seek profits.

Technical Approaches

A purely technical trader assumes that all fundamental information is immediately integrated into market pricing. This trader assumes that market action related to the anticipation of fundamental changes falls into the category of market sentiment. These traders look for technical signals that indicate either the continuance of a trend or a market reversal. Although the buying and selling of such a trader may resemble the actions of a swing trader, the purely technical trader does not assume any regular market action. Rather he or she seeks to benefit from the fact that market price patterns tend to repeat themselves and are, therefore, predictive of future price movement. That is to say, the first part of a known price pattern predicts the later part.

Combining Methods

Many traders may use a variety of online Forex day trading strategies, depending on market conditions, their current aversion to or appetite for risk, and their trading skill set. What is important in any of the online Forex day trading strategies is that the trader keep track. Play back trades to analyze strategy and modify choice and application of trading strategy in order to improve results over time. In addition, traders may include Forex options in their approach to trading in order to increase leverage and hedge risk.