We have spent a little time describing how day trading works in the forex market, and how to start with it. We have also explored a little on how day traders help prop up many financial markets. From here, we shall continue by looking at how you should trade in the market. Thus, we will discuss how to stay ahead of the curb when it comes to day trading.
Best practices in day trading
There are a few key things to keep an eye on in day trading if you want to do well.
The first thing is to make sure you have enough liquidity. Trading can be a difficult and risky thing to do, as most of it is quite speculative. Therefore, a large amount of capital makes sure traders still have something to fall back on. They should then have an appropriate risk/reward ratio (usually at 1:3). Successful day traders do tend to make quite a considerable sum. However, it is still recommendable to make any investments quite low. In total, this combination reduces risk considerably.
Understand how the forex market performs, and what drives it. While the technical side is more important usually, fundamentals have wider-ranging impacts in the long run.
The most important thing for any good day trader is having discipline, though. This is the discipline for many things. The discipline to teach yourself how markets work. The discipline to control your emotions, and not trading recklessly. To be fair, sometimes discipline can result in missing opportunities. This is because you are focusing on only your strategy. However, these opportunities are few and far between. You cannot predict every price move, unfortunately.
The trader should most importantly have discipline when it comes to their strategy. They have to be strict and recognise what does and does not work. They have to balance being too willing to change it and completely unwilling to change it. Thus, they have to stay as objective as possible to the realities of forex markets.