In this article, we will look at the basics of successful day trading – the logic its based on and the profit potential of day trading strategies to make long term profits.
When new traders come into the Forex markets most pick strategies which aim to open and close positions in a day and this form of trading is also referred to as Forex scalping so why do they pick this method.
Day Trading Strategies – What's the Profit Potential?
There is a lot of info online related to trading short term moves and the logic is appealing – you can trade with low risk, by using tight stop loss protection and take small regular profits which over time can build up into a substantial income. FX brokers will tell you this method is a great way to make profits and so to will numerous sellers of trading signal services and systems.
Despite the fact that these brokers and system sellers tell you that you can make money scalping and day trading you are doomed to failure if you try this trading method – why?
Because the odds of making money in short term time frames is not good - in fact my view is it's impossible to make money. If you study volatility, you will see that support and resistance levels are within what is random volatility and this means, the odds are no better than flipping a coin and leaving the outcome to luck. Of course you can be lucky for a while but luck, cannot be relied on long term and you will lose.
Day Trading and Volatility
Just think about it – A huge amount of traders are trading a currency pair at anyone time and they all are trading with different skills, strategies. Some are hedging, some have to change currencies for business and some are speculating so – how can you really tell, what this huge diverse mass of people will do in time frames of minutes or hours? You can't of course so why do traders believe they can?
Forex Day Trading Scams
The answer lies in the day trading scam, where the people who promote will make money out of you but you won't make any, on your trading signals over the long term.
Of course FX brokers have two aims they want to achieve to make money - either generate money from trading spreads or to see a trader lose, because they bet against the trader as a market maker. So why not promote a trading strategy which guarantees both high commission earnings which guarantees a trader loses?
Brokers are of course out to make money for themselves and there is another group in the Forex markets who also see scalping and day trading as a great way to make money – the sellers of FX robots, Expert Advisors and signal services, know the idea of making money with low risk every day appeals to greed so they tell traders to buy their systems. These vendors know the systems don't work but they don't care, they make money from their sales with a story, designed to appeal to naïve and greedy traders.
They say you can trade with low risk (using tight stop loss protection) and then make small profits each day but this logic is not based on fact and is a scam. If you trade with tight stops to your entry, you will lose due to volatility, hitting your stop. You will have a huge amount of losers and the winners (if you do win) will be down to luck because you don't have the odds on your side, when using this trading method.
The track records used to support these get rich quick systems are always just back tests on past data and the trading system is curve fitted to the data to make the system profitable (you can read more about curve fitting on this site) but in short its just bending a system to make it profitable, knowing the open, high, low and close which is very easy. When these systems trade for real, because price action never repeats itself as it has done in the past, the system is doomed to fail.
The track records are so bent to the data because they have to be to present the story which the naïve traders want to hear which is thousands of percent in annual profits, with losing periods only lasting a short time and seeing equity drop by a small amount. These systems are designed to make traders think they can make money without really having many losing trades and most of these scam systems present track records which tell you they win on 80 0r 90% of there trading signals!
Of course its rubbish and simply done for marketing none of these systems can make the gains they claim and soon lose money for the trader. Forex trading is a high risk – high reward investment and you have to take a realistic risk to make big profits. There is no way, you can trade Forex with low risk and tight stops. Of course you can win but you need to take calculated risks with the odds on your side and trade longer term time frames.
Avoid Day Trading or Lose.
If you look at the facts and study price action and standard deviation, you will see its impossible to win long term. If you read articles on the great traders, you will see most of them are trading longer term. They will hold positions for days, weeks, months or even years and make money on their trading accounts because they have the odds on their side. Trading longer term gives you a better chance of success, you can trade with wider stops outside of the short term noise and hold trends for longer to cover losses.
The worlds best traders trade long term and avoid short term trading strategies and you should too. Day traders believe myths about market movement and predicting short term price moves but this is impossible so if you want to become a profitable currency trader – trade long term, forget day trading and scalping and trade for bigger profits and spend less time on your trading.