Forex is the world’s most liquid market, where traders play big amidst the most volatile trading environment. As a trading market, it operates 24X7, 5 days a week. However, every trader in Forex is not a full-time trader. Since it is a relatively easy market to enter into, Forex is teeming with part-time traders, seasoned and experienced veterans, new traders who want to learn the trade, or those who trade as a hobby. Amongst this assortment of the trading community, are also the intraday traders called the day traders and the ones who opt for Algo or automated trading.
FX Day Trading
Ideally, day trading, as an option is taken up mostly by the full-time traders since day trading needs constant market monitoring. A day trader indulges in many trades a day, making entries and exits quickly, and wrapping up business for the day on the same day.
Before a trader starts his trading for the day, he or she will need the money to play the market. This is easily available as the brokers who deal a trader’s account will lend him the money to play. The other aspect is a self-acquired and learned facet. It is the trading skills part. This combination proves effective in increasing a trader’s chances of making a kill in the FX market but not always. Timing the perfect entry and exit in and out of the market, respectively, along with a flawless speculation is what clinches the deal in terms of making money. But predictions are not easy to make. Traders use various tools, techniques and take the aid of technology to help them make the right choices. Given the fact that the FX market is volatile and is prone to various factors that may be beyond the market directly, it also has a tight turn time in case of events. For instance a sudden world event, or move by a major player to dump held currency in exchange of another. Hence, for a day trader, who does not wish to hold a position overnight, reacting to events at that very point is extremely important.
Day traders carry out FX trading using with price patterns
Price patterns form on charts due to the movement of the price in the currency market. Various kinds of price patterns are used by traders to interpret the market movement with the intent of trading. Trading, on the basis of these patterns, in terms of deciding on the entry and exit, the stop-loss orders, trading a trend or a range etc, is referred to as price pattern trading. Price patterns are also called the chart patterns since it is ultimately on the chart that the price movements reflect.
As a manual trader, one can spend time and follow the price patterns that form and deal with the market opportunities. When the market ranges or trends, traders find opportunities. Their trading decisions here is influenced by individual trading styles as well as the market condition. The prerequisite for this is however for the trader to spend screen time. At this point in time, the question that arises is “what do traders, interested in day trading, with no time do”? This is where the automated trading systems, come into play.
Day Trading Forex with automated systems
Day trading in Forex, with an automated system, is often a skeptical and debated topic. Views of people differ. The most asked question is about the effectiveness of an automated system. Day trading needs human interference and analysis, especially when a change is speculated or when it occurs influencing the currency price movement? This is probably one of the biggest challenges that an FX automated system face. Hence a thorough scrutiny of what an FX trading system can do will prove valuable towards understanding the same.
The pros of an automated FX day trading system
1) Breaks down the emotional barricade:
In Forex expert Kishore M’s words : If there is one point of convergence of agreement about the automated systems, it would be about negating the emotional turmoil that a trader faces while trading. The trading domain has four emotions that the traders are most prone to Fear, Hope, Greed and Panic. A failing trade may lead a trader to panic and sell out or play harder to recover what is lost. Any way that a situation like this is analyzed, it is easy to spot instances where playing into the hands of emotions, have had disastrous consequences. A trading system is far removed these emotional fluctuations and hence, a system will never blotch a trading on the basis of an emotional upheaval.
2) Multiple trades:
A FX trading system is equipped to take on multiple trades at any given point in time. This is humanly impossible for a manual trader. Keeping constant track of more than a couple of trades and yet being absolutely spot on with them, is not possible for the human mind-intellect. This is where an automated day trading system scores over manual trading since intraday trading is all about taking multiple trades the same day, making profits and exiting the market at the end of the day.
3) Instantaneous reaction:
Day trading is about immediate reaction to price pattern changes in the market. A trader might take a while to consider his entry or his exit, as fear of losing and the hope of landing some more profits may create a dilemma. With an automated system, the reactions of the system to such a defined situation is predetermined via coded algorithms. Hence a trading system reacts quickly and precisely.
4) Does not divert from the strategy:
Every trader usually has a worked out trading strategy in place. Those who trade using automated systems, feed in their strategy into the software. These feeds include trading style, checkpoints, parameters like the currency pairs to be traded, position holding duration for the day, stop-loss orders etc. The software executes the instructions flawlessly, without diverting from the defined strategy. This can prove beneficial when the market conditions are ideal for the trading system. However, when human interference becomes a must due to a sudden environment change in the market, traders can put a stop to automatic execution and manually salvaged the situation. However, when the software continues to trade, it will do so until the stop loss level is reached, without diverting from the strategy.
5) A genuine test of a trader’s strategy:
Kishore M, FX trader and trainer says, “A test is an ultimate check to validate a Forex strategy. From the very beginning, new traders are advised to practice in a demo environment and develop their own strategies. The same strategy, when uploaded into a software, is put to its decisive test when it trades”. Since a software always executes its instructions seamlessly, it is, therefore, safe to conclude that the success or a failure of a strategy is tested over a period of time. In case a trader finds loopholes in the software, he may go ahead and modify or rework on it.
Day Trading Tips using the automated system
Day trading in FX is not much different when it comes to trading manually or automatically. Here are some pointers to help traders find a footing with automated day trading.
- Adhere to the trade timing of London and US exchanges;
- Stick to major pairs;
- Follow the trend ;
- New traders stick to major pairs;
- Wait for the price to consolidate after a pullback. Choose a level high above the consolidated price for a breakout buy;
- Do not overlook stop loss levels;
- If you are away and cannot check on your system, cancel your orders ;
- In case of an impending event, opt for the manual option and exit trading till after the news releases. ;
- Do not underestimate back testing your system;
Day trading is short term, intraday trading. The goal is to earn while trading many trades for a short time. Day traders do not hold their positions beyond the day. Though day trading is one of the distinct traits of the Forex and the stock market, using an automated system for the same is still a debated matter.