Day Trading Forex

Last updated on June 23rd, 2015



Many traders are drawn to the seductive prospects of making easy money, trading in the currency markets from the comfort of their own home, and why not?  Trillions of dollars pass through the foreign exchange markets (forex) each and every day.  It is by far, the largest, most liquid market on Earth.  How hard can it be to grab a tiny nibble of such large volumes of cash by day trading?  Anyone can pull up a price chart and see the obvious price swings in the market.  One price bar could represent hundreds if not thousands of dollars of profit.  Or so it seems!

Many marketing firms understand this and will make crazy claims of how you could quit your job and live your dream by merely taking easy to follow trades that will make you gobs of money, over and over again.  The operative word though is ‘dream.’  These firms will sell you the dream but the hard fact is, and one that most often comes with a rude and often painful awakening, is that the only dream you will realize, will be a nightmare!

Short of becoming a fighter pilot, day trading forex is one of the most difficult pursuits to succeed at, and like anyone who is not well trained and fully prepared to handle the cockpit of a fighter jet, most forex day traders will crash, burn and blow up their trade accounts.  Why is that?  How can something so easy actually be so difficult to succeed at?  Believe it or not, while there are many reasons for this, few reasons seem to be the main culprits for just about all failed forex day traders, which accounts for about  90% of all those who try.  Yet if you can overcome these hazards, you can actually find yourself in the small elite group of the 10% who actually do succeed.

First and foremost, understand that your broker is NOT your friend.  They are out to make money and they have no problem doing so at your expense.  Forex is a decentralized market meaning each broker is free to set his/her own quotes.  Many traders don’t realize this and it becomes a big danger to those trying to day trade because often, the trader’s stops will be too close to the market and the broker can move to knock you out of your trade.  Nothing is more aggravating than to experience this and then moments later, watch the price actually move towards what would have been your profit objective.  This happens all the time.

Worse, brokers live off of a thing called ‘the spread.’  The spread is the amount between what you can buy a forex pair for vs. what it is selling for.  It is referred to as the ‘bid’ and the ‘ask’.  The bid is the lower of the two prices while the ask is the higher of the two prices.  If you want to buy a forex pair, the price will be at the bid, but you will have to pay the ask.  The ask could be a few pips above the bid and the moment you enter the trade, you are already behind the eight ball.  You are in a losing position.  If you short the market, you sell at the lower price, while the actual price is at the ask, or higher part of the quote.  In this case, you are also in a losing position the moment you enter the trade.  It gets even worse still.  The broker can widen and tighten the spread any time they wish.  It will always be at their advantage and never at yours.  I have been knocked out of winning trades just before they move to my target and I have actually been triggered into losing trades where it doesn’t even look like the price got close to the entry price.  It did though, because the broker widened the spread for a moment to put me into that losing position.  Sinister, right? This happens all the time.

Beyond the broker difficulties, day trading even has more challenges.  Forex can be super slow at times.  It can also have momentary bursts of energetic price action.  It is often unpredictable when these energetic moves will occur.  Most forex day traders find themselves sitting in front of their monitors waiting to take a trade, for hours and hours.  Or waiting for something to happen once they are in a trade, which is equally tough.  In my opinion that is no way to trade.  It creates huge potential for errors, fatigue, boredom, lapses in concentration and other life distractions.  At some point our humanness begins to influence our trade decisions in detrimental ways.

With all that being said, you might ask yourself why even bother?  If I have scared you off of the idea of day trading, then that’s a good thing.  I want you to realize the dangers of day trading.  Now that I’ve broken down your idea for fast, easy money, let me know begin to build you back up again by setting the stage for realistic expectations and some encouragement that their actually are ways to day trade forex successfully.  It can be done.  Anyone who is serious and treats the markets with respect can have a great chance of joining the group of 10% successful forex day traders.  You just need to have a solution for the above pitfalls.  You need to think differently and to not follow what the majority of losing forex day traders do.

Here is a short check list of what you need to succeed at forex day trading. Some of it is fairly obvious while other things may not be so apparent but are equally as important:

  1. A good reputable broker.  While the broker still remains your adversary, the biggest and best brokers will at least give you competitive quotes and spreads.  You also want a broker that permits you to trade micro lots.  This will give you greater flexibility in putting on the proper position size and to help you better manage your risk.
  2. You need to treat your trading as a business with the intention to make money like any successful business should.  From this point of view, you can make higher perspective trade decisions with the goal of making money vs trying to win every trade.  Trying to win every trade is a fool’s pursuit because it is not possible and therefore is not a productive approach to making money.  Treating your trading as a business will help you rise above this common pitfall.
  3. You need to have a good, powerful ‘modern’ computer; multi-core, fast drives, maximum ram, etc..  Don’t skimp on your tools.
  4. You need to have a professional trade and charting platform. I think Tradestation and Ninja Trader are two of the best.  Meta Trader 4 (MT4) is a good ‘semi-pro’ option which happens to also be free.  You can start with MT4 and then move up to the more professional platforms as your needs progress.
  5. You need a good day trade strategy that comes with rules and a thorough tradeplan that you can follow, day in and day out.  Just like running a business with standard business hours of operation, you want to be consistent with your trading.  A good trade plan should tell you when to begin and when to quit trading each day.
  6. Your trade plan needs to have sufficient ‘juice’ in it to be able to produce enough winning trades to offset the losing trades while also offsetting the very real trade costs that you will incur.  The biggest cost of all will be the spread costs that you pay on each and every trader.  Remember, you are at a loss the moment you enter a trade.  I personally prefer a multifaceted trade plan that allows me to scale out at different target levels while also providing me with effective techniques to trail the final part of my trade for the occasional big, homerun trade.  I developed several strategies that do this, my preferred being the Trend Jumper,
  7. Be prepared to do preliminary research, also called backtesting.  You need to backtest your strategy so that you can see how it performs through various market conditions.  Despite the inevitable losing trades that occur, does the equity curve continue to grow?  You have to witness this until you have built a strong enough belief structure in your tradeplan to have the necessary confidence to trade the plan as it is intended to be traded.  This is HUGE!  Without this critical step, you run the risk of trying to avoid losses or worse, to either fix them or to jump around to different markets/forex pairs which will inevitably lead to a never ending cycle of losses.
  8. Focus on the pairs with the most range, and the lowest spread costs.  Trying to scalp out 10 pips here and there will probably lead to more losers and a negative longer term result. The spread costs take up too large of a percentage of the overall trade objective.  I prefer a strategy that tunes its targets to market conditions, providing high percentage targets and the chance to hit larger gains by taking advantage of the explosive moves that can and do happen.
  9. Your plan needs to win more often than it loses and to win more than it loses.
  10. You don’t need to trade a lot of pairs.  In fact, there really aren’t that many pairs that actually fit the bill for day trading   Most pairs just don’t have the consistent range or the spreads are too costly, or both.  The EURJPY is probably the best daytrade pair there is as of this writing but there are others that might be considered.  The AUDJPY, CADJPY and GBPJPY could be contenders.  I have found that the EURUSD is probably not a good choice.  The GBPUSD is often a great trading pair but it can go through long periods of time of being lousy.  The USDJPY offers very low spread but not the greatest range.  When you really look at the options, at least in my opinion, the EURJPY rises to the top as the best forex day trade option.
  11. It is a good idea to join a reputable live traderoom and to get an experienced mentor.  Trading is a lonely business and the traderoom can help you remain disciplined and focuses while also building camaraderie.  Also, you gain valuable repetition.  Being able to actually execute your day trades takes practice and it is something you need to work hard at so that you can place your trades without mistakes.  Mistakes will really harm your end results.
  12. Be accountable for your actions as a trader.  If you are not getting the results you want, then chances are you have not covered all the important steps above.  Take responsibility for it and do whatever is necessary to fix it.  Usually it requires more backtesting and practice.


There are obviously many ways to day trade forex.  The bottom line is that you need to establish an edge in the market.  Make sure when all is said and done, that you have determined that you are putting the odds in your favor with every trade you make.  If you do this, you will be in a better position than most of the traders out there and you may actually have a chance to realize the very GOOD dream that comes with successful day trading.

For more information regarding everything mentioned above and trading in general, please visit



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