Advantages of Day Trading In Forex | Apexum


Advantages of Day Trading In Forex

June 17, 2019

Trading financial markets is a different experience for people. Depending on personality and risk appetite, different trading styles exist. A trading style refers to a trader’s attitude towards the market. More precisely, it relates to the time horizon traders are willing to let their trades open before cutting the loss or marking the profit.

Investors like to keep their positions open for a long time. They have plenty of financial resources and typically act way ahead of the curve.

Being ahead of the curve means anticipating a change in the underlying fundamental conditions and willingly placing a bet that the market will turn. The time horizon doesn’t matter as these traders use fundamentals and changes in the macroeconomic picture.

Such changes take time to form, and investors need plenty of patience and resources to wait for the market to turn.

Swing traders are investors that have little patience and less time on their hands. Either pressed by the need to perform on a relatively small timeframe ( the look at the daily, four-hour or even the hourly charts) or the lack of capital to keep positions open for longer, swing traders wait for a few hours, days, or even a couple of weeks until closing a trade.

Many retail traders fall into this category, but not as many as those involved in day trading.

What is Day Trading?

Day trading emerged as a form of Forex trading where traders close all open positions at or before the end of the trading day. Any Forex broker is more than happy to have as many retail traders involved in day trading as they will generate important commissions.

Let’s not forget that brokerage houses live from commissioning, by intermediating the access to the interbank market.

A Forex trading system based on day trading requires that all positions are closed at the end of the trading day. No matter what, either with a profit or with a loss, the traders close the positions.

Also called intraday trading, day trading is a disciplined approach that resembles scalping. When scalping, traders keep positions open for a brief period and use lower timeframes like the one-minute or maximum the five-minute chart.

When day trading, the timeframe doesn’t matter, as long as the position is closed at the end of the trading day. For instance, even the monthly chart is useful in day trading.

If there’s a candlestick pattern like a hammer (reversal pattern that forms at the bottom of bearish trends), the market typically retraces 50% or 61.8% before putting a bottom. Therefore, traders act on a daily basis but consider a timeframe that usually isn’t used by scalpers.

One of the many day trading advantages is that traders avoid negative swaps. A swap is the differential between the two currencies that make the pair, and it may be negative.

In fact, the last years brought some changes in the monetary policies around the world, as the recession forced central banks to ease below zero. The process resulted in many currency pairs having a negative swap and affecting the balances of swing traders and investors.

Day trading the Forex market, however, avoids such costs. Moreover, by closing the positions at the end of the trading day, traders benefit from better money management than other trading styles.

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