Late night infomercials are notorious for toting the success of automated mechanical forex day trading systems. These systems will supposedly make a forex day trader an instant success, netting thousands of dollars to an investor that follows the system to a tee. Unfortunately, many forex day trading systems are flawed and prone to failure. These mechanical systems are more often than not a waste of money.
Fortunately, even without the aid of an automated forex day trading system, forex day trading can still be profitable. One great suggestion for the beginning day traders is to avoid these mechanical trading systems all together. Instead, opt to learn basic trading skills, technical analysis, gain a solid approach to your method of investing, and gain a little experience in the market.
One great way to make a profit with forex day trading is to concentrate on one currency pair, such as the USD/JPY or EUR/USD. Why focus on one currency pair? Because, by observing a single pair you can get a feel for how those currencies flow with the economy and market. You can also cross check it with other pairs when the currencies begin to drastically change. By concentrating on a single currency at certain hours, you will learn when it is best to buy, sell, and hold.
There are two styles of day trading systems. The continuation day trading system is the first. Continuation focuses on breakouts and trends. This style is best utilized when trading during the most active hours of the day. The other type of forex day trading is the reversal day trading system. The reversal day trading system involves trading currency when the ranges are at the edges, betting against breakouts. This system is best during the quieter trading hours, when fading the edge of the range is more probable. Whichever system you decide to use, success comes from the proper use of risk vs. reward and setting stops and profits in the right places.
What forex day trading system you use depends on your geographic location and the currency pairs you choose to concentrate on. Somebody living on the west coast of the US, trading the currency pair EUR/USD, would want to use the reversal day trading system. The EUR/USD trading has quieted down by mid morning Pacific time. In order to capitalize with continuation, that person would have to get up very early or stay up very late.
Remember, having a personal system of stops and profits is vital to making a profit. Someone using the reversal system might look for double-top and double-bottom ranges. If you can get off 5 trades a week and capitalize on three of them, you will earn a nice profit if your wins are 1.5x your average loss.
Important to any forex day trading system is the utilization of a methodology. This methodology can be the creation of a forex expert, your own creation, or a combination of the two. Have trading ideals in mind and have the discipline to stick to them. Don't take unnecessary risks.
Peter Flemming is a professional Forex Trader and is a staff writer for a forex Trading Profits, a website about learning forex trading and trading education. Download a copy of our free forex ebook today!
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