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Guide to Forex Day Trading

Guide to Forex Day Trading

Never before has the Forex day trading market being so attached to the political landscape of the world. With the euro zone currency crisis and the Greek bailout still hanging over the heads of world economists and political leaders, business across the world is at a virtual standstill. No one knows what the next move of the euro zone will be or if the unstable nation of Greece will bring down the entire world economy into a second recession following the one that was caused by the United States housing bubble.

However, there is still a way to profit from all of this madness, and it is in the Forex day trading market.

For the savvy investor, the volatility between currencies of the world is an opportunity to create profitability for themselves. Highly volatile currencies with lots of arbitrage to be had is not scary for a Forex day trading professional; rather, it is like taking candy from a virtual baby. Such a wide opportunity for the savvy Forex day trading professional only comes during times of increased volatility around the world, and as the politics of the world are trying to steer the economies of the world towards some kind of stability, this opportunity will likely not come again for a long time.

The secret to investing successfully in this Forex day trading market is not more information, but less information. Along with all of the relevant information that may be completely true will be a lot of irrelevant information that does not pertain to your individual Forex day trading portfolio. That information should be quickly shunned and ignored.

The biggest mistake that many intermediate and novice Forex traders make is to act on every piece of information that they receive. Success in Forex comes from limiting yourself to currencies in which you have a competitive advantage of knowledge. You will then set up an investment portfolio that mirrors this competitive advantage. You will only act on information that directly concerns your portfolio, leaving the other “hot tips” for people who have competitive advantages with those areas of the world.

What is Day Trading?

What is Day Trading?

If you are looking to get into the incredibly fun and rewarding profession of day trading, there are a few things you should know before you begin.

First of all, day trading is not for the weak stomach. Once you begin trading on the live markets (after you test your skills with dummy accounts for a year or two), you should realize that the best traders have absolutely no emotion about separating you from your money. You are not fighting the market or responding the information that you see on the TV or from other media sources; you are locked in a face-to-face battle with the trader on the other side of the trade.

You must also understand that your purpose as a new day trading professional is not to create profits for yourself; it is to act as a temporary market maker for a niche market in which you have better pricing information than the majority of the other participants in that market. The purpose of successful day trading is to more quickly facilitate the movement of securities from buyer to seller. You are basically taking the job of the market makers, which consists of the best traders running the best day trading software in the world. This is not an easy job to take, and they will not give it up easily.

In order to be successful in the world of day trading, you must definitely invest in the best trading software that you can get your hands on. You need a trading software package that has an execution time that rivals the market makers on Wall Street and you also need sources of information that you can trust in always.

You will find that the majority of the information that you received as a day trader is not helpful to you, although it may actually be true in fact. You will slowly but surely whittle down your information sources to a trusted few, and your strategy will become more and more focused on the industries in which you have a competitive advantage. This is what is necessary to become a successful day trader.

Day Trading Strategies

Day Trading Strategies

In order to be successful as a day trader, your day trading strategies must be geared toward your strengths as a trader. You must first figure out exactly what advantage is that you have in the marketplace that can be leveraged to obtain the most profit for your day trading business. You will then be able to modify and tweak your day trading strategies to complement this philosophy.

No matter what a person’s day trading strategies are, the first reason that most people are not successful as a day trader is because they do not hone their skills in a niche market. The biggest mistake that you can make as a novice or intermediate day trader is to try to connect your day trading strategies with the latest “hot tip.” Even when these tips are completely truthful in nature, there is an element of execution that almost ensures that any tip that you have seen, other people have already seen many times. All of the juice in that trade has probably been sucked up by people who have a split-second faster execution then you.

Instead of being a follower, dictate your day trading strategies and philosophies before you go into the marketplace and let your results follow from them. Sticking to a philosophy and only the industries in which you have an educational or strategic advantage is the number one way to succeed in the day trading market. After you have mastered this discipline, you will be ready to make even more niche oriented tweaks to your day trading strategies. At this point is where the real money starts rolling in on a consistent basis.

Once you have chosen a niche and a strategy that fits you as a trader, you will be able to more easily discern which information is accurate and good to trade on. You will naturally narrow down your information sources and your strategies will become much more tightly wound around a few formulas and patterns that have shown themselves to be consistently profitable for your day trading business. This is exactly the effect that you want.

Day Trading Software

Day Trading Software

In order to succeed as a day trader, you must definitely invest in the right day trading software package. Although much of the success of many day traders has to do with their personal skill set, there is an element of execution and research that can only be fully explain by the day trading software that successful day traders use.

Not all day traders will respond the same way to day trading software packages. You may have to do a bit of trial and error with introductory accounts to figure out which day trading software package is the best match for you. Which industries are you planning to make your coup in? Some day trading software packages are better for certain industries than others, and there are certain day trading software packages that specialize in certain industries.

The bottom line is that before you can truly decide on which software package would be best suited for, you must figure out what your own trading strategy is. More than anything, you must figure out what your weaknesses are and how to compensate for them with the trading software that you will eventually be investing in.

No matter which software package you choose to use, you must make sure that you have the absolute fastest execution time that you can possibly get. If you have to pay a little bit more for an extra VIP package, it is well worth it in the day trading market.

However, you must first use of basic software package that you like. Online reviews can be helpful if you weed out the reviews that are obviously there to pump up the product or destroy it. Make sure that you only get reviews from websites that you trust. Often, these websites will not even be websites that are dedicated to investment, as competitors will often flood these websites with messages against their competition to sway new customers to their software package.

Make sure that the trading software that you pick has a user interface that is intuitive to you. You cannot take the advice of other traders on this point; you must go with what is comfortable for you.

The Life of a Day Trader

The Life of a Day Trader

While the thought of becoming a day trader might seem glamorous and exciting, the reality of the situation is that it usually isn’t. In fact, the life of day trader can actually become quite mundane and boring, as every day is similar to the last.

If this is the case then why do people choose day trading for a living?

Ultimately, the number reason is because the pay-off can be huge. Let’s face it, there is not many careers or professions where you could potentially make millions of dollars while sitting at home on your computer all day.

Also, many day traders experience a sense of freedom while working for themselves, with no boss looking over their shoulder every minute, and no annoying co-workers to deal with.

Add to this the fact that a day trader can work anywhere in the world, as long as they have an internet connection, and it’s easy to see why day trading is such an appealing option to thousands of people from all walks of life.

Let’s take a closer look at just what is exactly involved in the life of a day trader…

Following the movement of stock prices

If you take your eye off the ball for too long, you will lose out. Day traders need to pay attention to the movement of stock prices on a consistent basis in order to be able to quickly identify profitable trades.

This means long hours in front of the computer, constantly keeping up with events in the market and working out your next move.

This kind of lifestyle isn’t for everybody. Not everyone is able to cope with the solitude of being on their own, and quickly start to miss the companionship of having people to talk to in the office.

Also, if you are used to working at a job where you are on your feet the majority of the day and physically doing things, then you may find sitting at a computer all day tough to handle.

Making quick decisions

A day trader must live and die on their decisions. One false move can mean huge losses, which can take a serious chunk out of your day trading account balance.

However, although there is a lot at stake with every new trade, this doesn’t mean you can afford to take your time thinking things over for hours on end. Due to the nature of the business, day traders are not granted this luxury, and instead they must make decisions quickly in order to profit from the markets.

This means that sometimes you might just have to go with your “gut feeling” and make the trade.

Failure to act quickly will mean that opportunities often pass you by, with the end result being no substantial profits at the end of a trading day.

Stress

Every day trader will get stressed at one time or another. Some more than most. The key is not to avoid stress but to learn how to deal with it.

A good day trader can feel stressed but still keep a clear enough head to make the right decision. Stress only becomes bad when it affects your thinking and leads to making stupid errors. Once this happens you are toast, and it’s time to take a break or leave the trading world altogether.

Getting involved in day trading means buying and selling a large volume of stock over the course of just a few hours, and the sheer amount of information and changing circumstances that you need to process in a short time frame can quickly lead to the stress piling up.

The best way to deal with stress as a day trader is recognise it before it overwhelms you. Then, take a few minutes to reset your mind, and even do some relaxation techniques such as deep breathing. Once you feel more relaxed, re-focus your mind and get back to the computer.

The Life of a Day Trader

Are you ready to become a day trader?

Now that you have a better understanding of what a day trader does, are you now ready to start doing it for yourself? If so, then here are a few tips to get you started…

Educate yourself

Did you know that the majority of people who try their hand at day trading end up making no money at all?

In order to avoid this, you need to educate yourself on the day trading fundamentals. Invest in some of the basic day trading books that will give you a good overview of the industry as a whole, as well as finding a company who offers training courses to take you through your first few steps.

Get a mentor

One of the best ways to ensure your success as a day trader is to find somebody who is already there.

Maybe you have a friend who is a successful trader? If this is the case, then you should definitely ask them if you can sit in while they are trading, as well as getting as much advice from them as you can get.

Reading books and enrolling in training courses is great, but there’s nothing quite like learning from a mentor.

Start paper trading

Before you actually start risking your own money as a day trader, it is a good idea to try paper trading first.

This can be as basic as watching the markets and then writing down the trades that you would make if you were actually trading. After a few weeks of doing this, you can refer back to all of the trades you made and see if you have been profitable.

Also, there are many different day trading software programs available, which can actually set you up with a demo account. This means you have the benefits of using actual day trading tools and news feeds to make your life easier, while not actually risking any of your own money.

Conclusion

The life of a day trader is not for everybody. If you think it might be for you, then the best course of action is to try it out for a few weeks in your spare time. By doing this, you will quickly find out if it’s the right career path for you.