FOREX Day Trading Techniques
By definition, FOREX day traders have a very small time horizon for holding a trade: one day or less. This level of trading nimbleness requires access to real-time information and online trading software. Day-trading techniques depend on technical analysis: predicting future prices by studying prior price and volume data. A FOREX day trader uses technical signals to trigger quick trading entries and exits.
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Charts
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FOREX day traders use real-time price/volume charts to investigate previous price patterns for specific currency pairs. Most trading software provides charting. Using charts, traders identify price trends, entry and exit prices, and moving averages. Specialized charts, such as candlesticks, help traders identify large amounts of data efficiently. Experienced day traders can quickly scan the charts to discover critical price points for trading.
Triggers
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A trigger is some event that signals a day trader to enter or exit a position. Successful day-trading requires the proper interpretation and management of triggers. Two basic types of triggers are price trends and momentum. A FOREX robot is a trading system that automatically places trades based on trader-supplied trend and momentum triggers.
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Trend Trading
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An uptrend is recognized by higher high and higher low prices within a specified contiguous time period; downtrends are the reverse image. A trend is broken when the current price moves below a previous low for an uptrend or above a previous high for a downtrend. Traders use trends and trend breaks in sophisticated algorithms that signal when to open or close positions.
Momentum Trading
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Momentum is measured by price differences over two time periods. Momentum traders look for signals that arise from comparing current prices to various-duration moving averages of price. In a time-series moving average, the oldest price is removed each day as the newest one is added to the average. These price differences are often "smoothed out" via exponential moving averages (EMAs). EMAs weight each day's price by its age, so that older prices carry less weight. The number of days included in the moving average determines how responsive the average is to change.
Stop-Loss Order
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Day traders must react quickly when prices turn against them. Therefore, a standard day-trading technique is to always enter a stop-loss order on any open position. A stop-loss basically closes a position if it loses a predetermined amount of money. A trailing stop-loss works on a percentage basis and can rise with current prices. For instance, a 10-percent trailing stop will trigger if the price of your currency pair declines by 10 percent. If, however, your position first gains five percent, the trailing stop-loss will be reset with your position five percent higher. This way, traders can "ride" their winning positions and maintain downside protection.
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References
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