One of the most popular trading approaches used by forex traders is that of day trading, which involves opening and closing positions on the same day, so that no open positions are carried overnight. This avoids the danger of carrying any risk while the trader is not active in the markets (when sleeping, for example!). For this type of trading, many traders will employ a Forex Day Trading System.
Day trading itself is not without risk. Because positions are opened and closed on a shorter-term basis than when following longer-term trending strategies, stop-loss orders have to be placed closer, which means there is more chance of those stops being triggered. Also, because trading is more frequent, spreads and commissions have a greater impact and can adversely affect any profitable trades that are made.
Having said all that, many traders are very successful at day trading.
Day trading systems generally fall into two categories, directional and scalping.
Directional trading systems trigger buy (sell) signals at a point where the system indicates the price will move higher (lower) for a period (sometimes the entire day), either to a pre-determined target level or until a specified set of circumstances occurs, at which point the position is closed out.
Scalping trading systems on the other hand usually identify a lower and upper range at which the currency is expected to trade over a much shorter time period, triggering buy signals at the lower end of that range and sell signals at the upper end.
Whichever method you adopt, one thing that is vitally important when day trading forex is to have good, reliable, fast access to the Internet, so that you can see price movements as they happen not a few minutes afterwards.
So, how does day trading work? Typically, a forex trading system designed for day trading uses various pattern recognition algorithms to determine what is happening in the market and what is likely to happen next. These algorithms can be simple (weighted moving averages, convergence/divergence, etc) or complex (stochastics, Elliot Wave, etc). Based upon those algorithms and the profile parameters entered by the trader, the systems will generate buy or sell orders and indicate whether positions should be opened or closed.
Some of the more expensive day trading systems use complex event processing and neural network/artificial intelligence to calculate entry and exit points.
There is usually functionality provided in the systems for back-testing, i.e. testing the strategies on historical prices to see what would have been profitable under specific circumstances.
Day trading can certainly be very profitable for the disciplined trader using a good quality forex day trading system. However, there is no doubt that more people lose money than make money when attempting to day trade, particularly novice investors.
So our advice is, when looking for forex trading systems to support your day trading activities, tread very carefully and select your Forex Day Trading System wisely, and never invest more than you can afford to lose!