Is intraday trading profitable for newcomers?
Forex short term trading. Short term trading
Short term trading - This is the most dynamic way of working with currency pairs, which allows you to quickly increase your starting capital. In addition to medium and long-term strategies, such systems form the basis of a speculative portfolio.
A logical question arises: why was short-term trading so rapidly gaining popularity and ousting other strategies that many writers made decent money on the sale? In fact, nothing is surprising here.
First, when a trader opens and closes a position within a day, a trader immediately sees the actual outcome of his activity. Especially when a profit has been made, the mood rises, plans for the future appear, etc. If you had to fix the loss, this is an opportunity to ponder the imperfection of the system while there is still a chance to add the rest of the capital rescue.
In the medium term or the speculator is deprived of this advantage, as the deal, which has been written down on "paper" for several months, can consequently be closed with a large loss. Of course, professionals know the approximate mathematical expectations of their operations and therefore calmly perceive losses, but beginners often break down.
Second, short-term trading is theoretically more profitable, i.e. in a successful combination of circumstances, the overall profitability of such operations is many times higher than the profit made by medium-term and long-term strategies.
Third, if we take into account a specific time interval (year, quarter, etc.), there are many more short-term deals than long-term deals, which means that an active trader realizes many market processes much faster.
Consider a simple analogy to help make it clear what this is about. Suppose two people are learning to code. You go to class every day and the second time every two weeks. Which one writes his first full-fledged code faster? I suppose the answer is obvious. Here is a similar story with trading.
And the final reason short-term trading attracts novice speculators is because of the mundane uncertainty. The fact is that often at night and on weekends there are events that cause the quotation marks to change hundreds of points, so sleeping and relaxing is kind of calmer when all transactions are completed.
The lack of swaps should also be mentioned here, which in the vast majority of cases devour part of the profit. Let me remind you that the swap is a fee / compensation for moving a position to the next day. In theory, this indicator is neutral (ie determined by central bank interest rates), but very often forex traders set it so that the loss from negative values is many times greater than the positive changes in the “penny”.
Features of short-term forex trading
I've just listed the main advantages of active speculation, but they also have some serious disadvantages that every beginner should know about. We list them:
- Short-term trading is associated with high risks, as many strategies open transactions with a large amount.
- Frequent operations are exhausting, which is why even a successful trader often needs vacations.
- Since the signal can appear at any time, you need to constantly monitor the market (there are already problems with the main work, so rare who manages to combine short-term trading and an offline profession);
- A series of unprofitable transactions can break an unbalanced person (in slang, this condition is called "propensity") when there is a desire to win back quickly.
- If a seasoned long-term can get a job in a mutual fund (the crowning glory of a speculator's career), then the short-term has a certain ceiling on professional growth.
Should a beginner act in the short term?
The cons under consideration are very serious, but they all pale before the following fact: It is very difficult to develop a profitable strategy for short term trading.
The graphic above shows an example of how the system generated good income for some time, after which the account was "merged". Please note that martingale was not used here; H. has just changed the nature of the market.
In these circumstances, it is not recommended to start a career as a short-term trader. In general, throughout my work on Forex, I've found that speculators go in two directions:
- The former start trading during the day, lose capital and then leave the market or switch in the medium / long term;
- The latter learn the basics of trading at large time intervals and gradually switch to smaller charts when profit is stable (hoping to increase the profitability of the business).
Short-term trading is therefore only suitable for professional traders who have already "acquired" a stable investment portfolio. For newcomers, the prognosis is not that favorable here, but without risking real money (which I recommend).
The most attractive way of trading for most traders, especially beginners, has always been viewed as short-term forex trading. After all, with its help there is an excellent opportunity to quickly get the expected profit, and this process can take a few minutes to a few hours, inclusive. However, in addition to the simplicity and speed of income generation, short-term trading is also associated with a very high level of risk. Therefore, short term transactions are best carried out by professional traders who are well versed in the nuances of the Forex market.
Short term trades (or in other words scalping) on Forex means trading within one day (one business day). In addition, it is very easy to keep track of price movements in these short intervals with maximum leverage. However, in order to properly implement scalping, a trader must adhere to several basic rules:
1. It is necessary to carefully monitor the moving average on the chart in order to be able to see how price fluctuations go down or up in the currency market.
2. A trader must also constantly monitor cycles that can help him determine the ideal moment to open or close current positions.
3. You always need to know exactly where the trend will lead in the future. That is, if the general trend towards the trader is reversed, positions will have to be closed as the chance of completing a profitable transaction is significantly reduced.
When we talk about the advantages of short-term trading, the main positions for the trader should be highlighted:
1. Given the smaller time frames with the same price ranges, the trader has the opportunity to earn more and faster.
2. The minimum cost of spreads.
3. You can open positions in both short and long positions.
4. Brokerage firms charge small commissions for short term trading.
5. The ability to place small stop orders, which allows you to trade with a minimum deposit.
6. A trader can expect greater leverage.
7. There is high volatility in the currency which enables the trader to maximize profits.
At the same time, short-term trading has its following disadvantages:
1. A very high psychological burden for the trader, especially when trading without a forex advisor and a well-developed strategy.
2. Very often there are delays in the execution of orders.
3. There is great competition between dealers in the market.
4. During short-term trading, the trader must be constantly present in the market.
5. A high risk, which consists in the fact that the trader always has to consider market movements and react quickly to them.
Short term trading is therefore a specific strategy that allows a trader to make a small but more frequent profit by opening / closing trading positions quickly. In addition, fundamental analysis is typically not taken into account when conducting short-term trading. Therefore, a trader must always expect that the price can very unexpectedly change direction and go in the opposite direction. Such trading requires a trader to have a good knowledge of the Forex market and all of the processes that take place there, as well as an increased concentration of attention and stable psychological preparation.
Short-term intraday trading or so-called intraday tradingintraday - intraday)is a pretty tricky business. Trading during the day is much more difficult than, say, medium or long-term trading. Short-term trading requires a certain amount of experience on the part of a trader and is by no means recommended for beginners. Although, ironically, almost every trader starts out with this type of trading. There are mutliple reasons for this. First, the obvious simplicity of trading (the misconception imposed by advertising different types of forex brokers and trading centers). Second, the desire to earn right here, right now.
Intraday trading involves opening and closing trades within a trader's working day without carrying over positions to the next day
Why is short-term trading so complex and dangerous? There are mutliple reasons for this:
High volatility. Of course, the shorter the price chart, the higher the relative price (to see this, just look at the charts with time frames M5 and D1 for the same).
The trader trades in short time intervals and focuses on short intervals of price movement. That said, he expects 1-2% (or more) of profit with these short price swings and this forces him to place significant bets (including using a large size). That said, we have some kind of cocktail with high interest rates and great price volatility, and it's a pretty risky combination.
Difficulty analysis. Technical analysis in short periods of time is not a very reliable ally. Most show the best results in periods longer than the first half of the year, and technical analysis (graphical models) are less likely to give false signals over large periods.
This is due to the fact that a pattern formed on a diagram with a short period and giving a signal in one direction may turn out to be part of a pattern drawn on a diagram with a long period and a Signal in the opposite direction.
Therefore, if you are not using the strategy of trading news (which actually relies on such sharp and large fluctuations in price at the time of its publication), make sure you have no open positions by the time of the next press release.
To keep track of the news, you can use one of the many that are now provided by everyone, even the seediest of forex brokers.
The fourth principle. Don't try to act all at once
Intraday trading already puts the trader in a fairly tight framework, forcing them to work in constant psycho-emotional stress. He is forced to follow it all at once and he seriously lacks time to reflect on his decisions. Decisions have to be made clearly and quickly and also implemented quickly.
Therefore, do not spray your valuable attention on a large number of traded financial instruments. First of all, it is recommended to choose no more than 2-3 tools that are weakly correlated with each other and concentrate all your forces on their analysis. Otherwise, you risk losing all your attention to the little things and losing sight of the main points of the analysis.
The fifth principle. Prioritize quality, not quantity
In short-term trading, like nowhere else, the main focus should be placed on the quality of the transactions. Never act just to act. Always remember that the lack of positions can also be a good position under certain conditions.
Only trade on obvious patterns that are supported by indicators from multiple indicators and confirmed in higher time frames. You should not open a position if there is no clear confidence in the completion of a particular pattern or if there are no supporting signals from other technical analysis tools.
Always close if the situation goes against your scenario. Do not open new positions and tighten existing positions in situations where you do not understand what is happening in the market.
Advantages and disadvantages. Who is interested in intraday trading
In addition to the risk described above (greater compared to medium and long-term trading) and the difficulty of analysis, short-term trading has other disadvantages:
- Constant psycho-emotional stress associated with the need to open a large number of positions (compared to a long-term trader) as well as with the need to withstand the inevitable drawdowns almost daily;
- In turn, large commissions are associated with a large number of open transactions.
But of course there is a downside day trading. For all its complexity and risk taking, intraday trading undoubtedly offers a number of undeniable advantages:
- The ability to quickly recover important economic news;
- The opportunity to earn right here, right now;
- The potential for higher profits compared to long-term traders (if a long-term trader gets 20% on a trend that lasts for several months, then day trader can handle hundreds of price movements at the same time, each of which can bring him 3-5% of profit).
From this it can be concluded that short-term intraday trading is suitable for stress-resistant people who can think quickly and make decisions quickly in order to get to the goal without reacting to short-term failures. It takes serenity and focus, but at the same time the trader does not need to have the patience required for long-term trading as the result is not long in coming.
That's all for now. If you have any questions, please ask them in the comments.
The term "short-term trading" can be understood in a number of different ways, but in Forex it is common to consider short-term trades with a duration of less than a day. In addition, short-term transactions usually fit into the framework of a trading session (Asian, European or American), i.e. H. about 6-8 hours. An even closer understanding of short term trading is to complete trades between 5 minutes and 4 hours.
The main advantage of short term trading is that there is no risk when you are out of the market. If the trader trades twice a day for several hours, he almost always protects his capital as he does not conduct any transactions for the rest of the time. In addition, he does not have to sit at the computer and keep to the schedules during the "downtime". The disadvantage of short-term trading is that the trader sometimes fears that he is missing out on an advantageous opportunity and, against this background, acts impulsively or for lack of sufficient reason to conduct a transaction.
Most short term traders focus on different chart patterns and candles rather than the general trend. Some traders claim that following a trend hinders their own strategy, while others, on the contrary, follow a trend as they consider such tactics to be less risky. In fact, there is always a risk as there is a correction in addition to the trend. However, in the long run, focusing on the main trend might be the right move.
The most famous short term trading strategy that Toby Crabble described in a book Intraday trading with short term price patterns and breakthroughs from opening ranges Written in 1990. The printed version of the book is currently unavailable and the digital version is priced at $ 950 (in the past, a printed version of this book was $ 3,000). The breakthrough of the opening areas is understood to mean the situation in which a purchase order should be issued when three circumstances occur at the same time:
- there is a gap between closing and opening;
- after the opening bar an absorption or a doji appears, which signals a strong change in mood.
- the opening area has narrowed in the past 3-10 days.
Originally, the concept of the opening area was applied to the exchange, where there is a clear line between closing and opening the market. There is no such clear barrier to Forex: opening and closing can be done at any time within 1-2 hours. Formally, New York closes at 12:59 a.m. Moscow time, at which point the data servers are up, but the market actually closes earlier. All of this does not mean that the strategy of breaking the opening areas in forex is ineffective, there are very few loopholes in the forex market. The actual closing only takes place in New York on Friday evening or the opening on Sunday afternoon, although there are sometimes gaps when the sessions switch from Asian to European. But the point is not that there are few loopholes, but that when they occur they can mean anything and not just what Craible described in his book.
The names of Linda Raschke and Larry Connors, the authors of the book, are also very famous in the short-term trade "Exchange secrets" . The book was published in 1996 and its current reprint is dated 2016. In their work, the authors describe various strategies with very original names, but their main value lies in this price patterns and numbersand not always difficult. For example, one of Raschke's rules is: Buy at new lows and sell at highs. This rule works quite well on a 4 hour chart, especially if you are drawing classic horizontal lines on the charts at the previous lows and highs and waiting for a reversal on a new approach to prices.
Another short term trading strategy is described in the book. Trade what you see: how to make profit with pattern recognition . The book was recently written by Larry Pesavento and Leslie Juflas in 2007 and is based on the famous character ABCD described by Hartley in 1936. Whatever you think and hear about Fibonacci numbers, the fact that short-term forex charts roll back 50% and 62% much more frequently than, say, on a daily basis, is undeniable.
Below is an hourly chart of the EUR / USD pair. Here an upward movement is initially visible and then a rollback to a level a little over 61.8%. The price does not want to go below, if there is no reason to sell you have to buy. The first buying opportunity arises when the price approaches the level of 50% (first circle), the second when the price exceeds the previous maximum (second circle), the third - when a new maximum is observed (red horizontal line) . In this case, there is also a somewhat unfortunate moment in the form of a strong correction between two areas surrounded by circles, and this moment reminds us that there are no ideal numbers on the chart and that the number often tells you when to buy , but extremely rare - when to sell. It's also worth noting that it is quite difficult to use a moving stop loss on the hourly chart. Therefore, it makes sense to set the usual stop loss and take profits.
Opportunities for a buy transaction based on Fibonacci levels and breakouts from highs
One could trade differently on the 4-hour chart for the same period. We apply the Raschke rule (“buy on the lows, sell on the highs”) and achieve a profitable result without being nervous.
10 minutes to read
Once you start trading Forex, your acquaintance begins with a world full of economic events, political speeches, indicators, oscillators, and other details that you have not seen before.
Short term forex trading is definitely interesting and educational, however, many traders fail to earn money this way. In order to become a profitable trader in not just the forex market but any other market as well, you need to be disciplined and constantly develop your own strategy.
Of course, you can go the easier route by copying other people's trades, signals, or strategies, but you won't get any knowledge that way.
When choosing a strategy, most traders typically choose between the position and day trader approaches. The latter type of trader uses short-term forex trading to capture market movements throughout the day. The main idea of day trading is to take advantage of intraday volatility and avoid paying for it.
In fact, most individual forex traders are day traders. As a day trader, you earn large sums of money with a higher frequency of transactions.
The amount of profit from the transaction is not as high for day traders as for position traders, but at the same time the number of transactions also differs significantly. Let's take a closer look at the concept of short term forex trading, most, and trading tips for short periods of time.
What is Short Term Forex Trading?
In the short term, short term trading means not holding a position for more than a day. Sometimes short-term trading can take several days but no more than a week. Contrasted with transactions that take a week to a month and are known as medium-term transactions. Longer deals are called positional.
The mechanism of short term forex is quite simple. The main idea is to use a strategy that allows you to receive a significant number of input signals in the M1-M30 timeframe. Usually, the short term trading is done in the most volatile periods.
These periods of time vary depending on the trading instrument chosen, but it is during the London sessions that the greatest volatility is observed.
The most important thing is that short term deals are usually driven by technical analysis. However, you should also pay attention to basic events. Anyway, the most important point is developing your own short term forex trading strategy. Let's analyze the main trading strategies for short periods of time.
Forex strategies for short periods of time
Let's take a look at the main strategies. We won't go into the details of the indicators, timeframes, or settings used, but rather explain the main types of short-term forex strategies and leave the process of researching the settings to you.
Before trading a live forex account, it is very important to gain experience of practicing on a demo account. So what strategies are possible?
This is the most widely used short-term currency trading strategy for day traders. It is based on earning as many points as possible from the transaction and trying to highlight as many trading opportunities as possible.
At the end of the day, look for a deal that involves a significant amount of money by setting the Stop Loss low and the Take Profit high. Usually held for a period from M1 to M5 as you need to get rid of any open positions fairly quickly. On average, if you follow this strategy, you will lose around 2-5 points and earn around 5-9.
There are two points to keep in mind when it comes to forex scalping. First of all, you should find a broker who can offer you the best possible implementation of a short term forex strategy.
This means that your broker should definitely be executing STP or ECN as you will not be able to perform effective scalping with the intervention of the trading department. Fortunately, Admiral Markets can offer you account types like Instant Execution and Market Execution.
Second, the spread immediately after execution is very important for scalping.
How to trade forex in short periods of time
When it comes to short-term action, you need to be disciplined like never before.
A common mistake made by beginners is trying to trade the forex market using short term trading strategies to avoid placing stop loss orders or simply changing them because they do not want to close a position. This behavior is unacceptable and should be avoided.
It should be remembered that scalping may not be the best short term forex trading strategy for you as it takes a lot of time and attention throughout the day.
Forex scalping is not an intermediate activity. Even so, it's very informative and educational because you can get a decent number of transactions through in a short amount of time.
This way you will learn the mechanics of Forex trading much faster and also test your level of discipline.
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