Forex Day Trading Strategies

Intraday trading has been one of the most popular trading activities for quite a long time. Daily trading signals that your Forex daily strategy can provide you with is a key step towards your trading success. However, not all day trading techniques and systems are the same.

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You have probably wondered whether you should trade long or short-term? Indeed, the decision is critical as it defines both your trading strategy and your mindset.

On the outside, it probably seems like the long-term trading approach would be easier in terms of the stress involved in making trading decisions. Think again. In all honesty, it tells us that neither way is less or more stressful than the other.

Instead, the crux of your decision should rest on deciding which trading style best suits your personality, and to do so prior to making your first trade. Today, we are going to show you different trading techniques and give you Forex day trading tips.

What is day trading?

Let's start with defining what Day trading in Forex is, namely, holding a position for no more than a day. Bear in mind that these intraday day trading signals and positions are not considered scalping. Scalping means holding a position for a couple of minutes or less.

The important benefit of day trading is the fact that your capital is only at risk for short periods of time. So, if you make the wrong decision on a trade, you will know it within a few hours or the same day. This provides you with the chance to free up your capital and to use it for new trading setups. Trading over a shorter time horizon has lower capital requirements than longer-term trading, i.e., because the latter generally requires a sizable capital outlay.

When trading short-term, you can easily determine the expected risk/reward profile of a trade. This is because, in short-term intraday or intra week swing trading, the profit target and the risk are both well-defined. When you have this consistent clarity, it's usually not a problem to plan where you will enter and exit a trade, especially, if you use profit stops.

Another benefit of short-term trading is the ability to define market orders. These help you during your intraday setups, so you can manage your potential entries daily.

The search for the best Forex day trading system is called the search for the Holy Grail. Please understand that having a good Forex trading system needs to comply also with proper money management. You cannot separate those two aspects. There are dozens of day trading systems, and we have chosen potentially one of the best Forex day trading systems.

Day trading strategy: 2 EMA bounce

This day trading strategy is very suitable for beginners, and as a beginner trader you should try it first on a Demo account and only then live if you can be profitable in at least two months of demo trading.

Time frame: 15-min, 1-hour, 4-hour, and daily timeframes. For novice traders, we recommend the 4-hour timeframe.

Pairs: EUR/USD, GBP/USD, USD/CHF, EUR/JPY, USD/JPY, AUD/USD, NZD/USD.

Indicators: Exponential Moving Average 7-period (EMA7, blue colour in the example); and Exponential Moving Average 21-period (EMA21, red colour in the example).

Rules for buy trading signals (long trades)

Determine if the price is in uptrend:

- The EMA7 line is above the EMA21 line

- The EMA21 line is either rising or flat (the slope of the EMA21 line should be up)
- The price must be trading above both EMA7 and EMA21

When we make sure that the price is in an uptrend, we need to wait for a pullback aka retracement. The price needs to drop from above the EMA lines to enter the area between two EMA lines. Then, one or more bars need to touch EMA21 (or decline slightly below EMA21).

After we see a retracement and the touch of EMA21 or slightly below it, we then place a buy order of 1 pip (+the spread) above the high of the last candle. When the price breaks above the high of the last bar by 1 pip (+the spread), we enter a buy (long) trade.

Stop-loss is placed 5 pips below the low of the retracement candle.

Profit Targets: You can use any Pivot point or the following:

Take-Profit Strategy 1: The target price should be approximately two times our potential loss. E.g., if the entry price is 1.1250 and we place a stop-loss at 1.1200, our potential loss is 50 pips. Our target needs to be approximately 100 pips, or 1.1350.

Take-Profit Strategy 2: We need to watch the slope of the EMA7 line. When the EMA7 changes start to point downwards, we should exit the trade.

Buy trade example

Rules for sell trading signals (sell trades)

Determine if the price is in uptrend:

The EMA7 line is below the EMA21 line;
The EMA21 line is either falling or flat (the slope of the EMA21 line should be down);
The price must be trading below both EMA7 and EMA21.

When we make sure that the price is in a downtrend, we need to wait for a pullback aka retracement. The price needs to rise from below the EMA lines to enter the area between two EMA lines. Then, one or more bars need to touch EMA21 (or bounce slightly above EMA21).

After we see a retracement and the touch of EMA21 or slightly above it, we then place a sell order of 1 pip (+the spread) below the low of the last candle. When the price breaks below the low of the last bar by 1 pip (+the spread), we enter a sell (short) trade.

Stop-loss is placed 5 pips above the high of the retracement candle.

Profit Targets: You can use any Pivot point or the following:

Take-Profit Strategy 1: The target price should be approximately two times our potential loss, e.g., if the entry price is 1.1250 and we place a stop-loss at 1.1300, our potential loss is 50 pips. Our target needs to be approximately 100 pips, or 1.1150.

Take-Profit Strategy 2: We need to watch the slope of the EMA7 line. When the EMA7 changes start to point upward, we should exit the trade.

Sell trade example

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.