We are going to discuss one of the best Forex day trading strategies for new traders. Please bear in mind, that this also used as the basis, for many advanced strategies. By definition, a day trader is a short-term trader, who is trying to open and close profitable trades in the course of one or two days. The most new Forex traders, are aiming to become successful day-traders, making use of the short time-frames. The paradox lies in the fact that-sort term trading is a game for experienced traders. But if the new trader has the discipline to follow a solid day trading strategy, he can get the probabilities on his or her favor.
Before we go into to the details and rules of this strategy, it is important to make clear the fact that does not exist a single strategy that always wins. Even a good strategy needs a good trader in order to become profitable in the long run. New comers in trading must pay attention to the rules, be disciplined and play their cards with wits.
The Short Time Frame Forex Strategy
This proven Forex day-trading strategy that is trustworthy, and can be applied from a new trader, is based on moving averages. Either you are using the simple or exponential moving average, it does not make a any difference, but I prefer using exponential moving averages. The EMAs that we are using in this strategy is the 9 EMA and the 36 EMA. We are going to trade in five time frame (M5). But we want to trade in the direction of the trend. In order to safely determine the main direction, we should take into account that this is only can be done in a longer time frame. In this strategy, the long time frame we are going to use is the one hour time frame (H1). You can consider this strategy as a multi-time-frame trading strategy. This is because by using more than one time frame, we can have a more robust strategy with more probabilities to be a winner one.
In order to open a long position (Buy Trade), the 9 EMA must be above the 36 EMA in the H1 time frame, and also the slope of both of the moving averages must be upwards. The signal for a buy trade, is when the price is crossing upwards the 9 EMA, in the M5 time frame. In order to initiate a sell trade or in other words to go short, you should follow this rule vice versa. This means, that you open a sell position when the 9 EMA is below 36 EMA in H1 time frame, and their slope is downwards. In this case the signal for the trade is when the price is crossing downwards the 9 EMA in M5 time frame.
The logic behind this trade strategy is that the price will most probably move to the direction of the trend after a re-tracement. This happens very often in trading and you can discover this kind of price moves in the charts of all financial instruments. Entry rule is only a part of a strategy but nevertheless it is crucial to get this step in the right way. This is of great importance especially when you are going after high probability trade setups. If you can employ strong price action setups as part of this strategy you will increase even more your winning probabilities.
Risk Management Rule
This is the part of the strategy that a new trader must be very careful. Discipline and exact execution can make the difference between a winning and a losing trading strategy. In a trending market it is important to buy in low price and sell in higher price but also it is critical how much we risk for a given and definite profit. Avoid the main mistake of all new traders and use the stop loss orders appropriately. Keep your losses as small as possible while pursuing realistic profits. In practice that means you should follow strictly the stop loss rules of this strategy.
In a long position you should place your stop order exactly below the previous swing and in case of a short position put it exactly above the last swing. Do not move around your stop loss orders. Stick with your plan. The 1-1 risk to reward ratio is suggested. In order to stay disciplined and follow appropriate risk management rules you should set your stop loss and profit target before opening the trade and let them intact until one of this points is reached.
Position Management Rule
Forex market is very volatile and when we are trading in short time frames we will face rapid changes in price direction. For this reason do not fool yourself staying in a position more than you should and expecting to go out with the maximum of profits. This kind of tactics have always negative results in the long term. Approaching gambling is very easy and should be avoided. Predefined profit target and stop loss is an important rule of this day trading strategy.
In some cases of strong momentum and only if there is enough space for this decision moving your stop loss order to break even may be reasonable. When one to one risk to reward ratio has been accomplished it is the time to get your profits and move out of a trade or to move your stop in order to break even. Important financial news of the day and fundamental analysis may play definitive role in this decision.
Using one or more positions in one trade is a matter of personal preference and many traders do follow this tactic. Position management is simpler when you are using only one position in a trade but using more than one in the right way can give you bigger rewards. As long as price is heading to the preferred direction you may gradually close your positions, realizing profits and reducing your exposure and risk, until the strong momentum become exhausted.
Conclusion and final trading tips
If I have to make a choice this specific day strategy strategy for new traders is considered the best Forex day trading strategy. The way you will apply the strategy will make the difference though. Please note that the market is trending most of the times and the aforementioned strategy is more effective intending markets. Testing in demo environment will give you the experience and confidence you need without risking real money. Always Forex day trading is risky and even the best traders accept losses. Realizing profits in the long-term is feasible but not for the gamblers. Money and risk management is the key to success in this turmoil and furious market.