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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

Forex day trading strategies for beginners

Day trading is one of the most popular trading styles. This guide provides details on forex day trading need-to-knows, forex day trading strategies, and how you can get started.

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Get info fast via our instant help and support portal. Available for account queries, ProRealTime, product info and more.

Visit help and support for more information.

Call 0800 409 6789 or email helpdesk.uk@ig.com if you have any questions about trading or investing. We're available 24/7 between 8am Saturday and 10pm Friday.

Contact us 0800 409 6789

Call 0800 195 3100 or email newaccounts.uk@ig.com to talk about opening an account.

Contact us 0800 195 3100

Get info fast via our instant help and support portal. Available for account queries, ProRealTime, product info and more.

Visit help and support for more information.

Get info fast via our instant help and support portal. Available for account queries, ProRealTime, product info and more.

Visit help and support for more information.

Call 0800 409 6789 or email helpdesk.uk@ig.com if you have any questions about trading or investing. We're available 24/7 between 8am Saturday and 10pm Friday.

Contact us 0800 409 6789

What is forex day trading?

Forex day trading is the practice of opening and closing currency pair positions within the same trading day. Forex day traders buy and sell multiple currency pairs on the same day with the aim of taking advantage of small market movements, while avoiding overnight funding costs (which apply if a position stays open past 10pm UK time).

Also referred to as intra-day trading, day trading isn’t for the part-timer, as it takes time, focus, dedication, and a mindset to match. It involves making fast decisions and executing many trades for a relatively small potential profit each time. It’s generally thought of as the opposite of long-term investment strategies.

As with all trading activity, the possibility of rewards come with risk of possible losses. There’s also no guarantee of stable and reliable profits with day trading, making efficient risk management a necessity.

Is forex day trading popular?

The forex market is a popular choice because of the vast number of currency pairs to trade and the high market liquidity – the ease at which currencies can be bought and sold. Day trading forex is also often used to eliminate the fees associated with rolling positions over, avoiding the risk of being exposed to overnight market movements.

What you need to know about forex day trading

When you day trade, the focus is on factors that can affect intra-day market behaviour; unlike position trading or investing, where the focus is on longer-term market movements. Some of the key factors to consider before you start to day trade forex are:

  • Liquidity: the liquidity of a market is how easily and quickly positions can be entered and exited. High liquidity is extremely important for day traders, as they often execute multiple trades throughout the day
  • Volatility: the volatility of an asset, or how rapidly the price moves, is an important consideration for day traders. If high volatility is expected during the day, the movements could create a lot of opportunities for short-term profits
  • Trading volume: an asset’s trading volume is a measure of how many times it’s bought or sold during a certain period. A high trading volume shows that there’s a lot of interest, and is useful for identifying entry and exit points

Ready to start forex day trading? Open a live account or practise on our demo.

Top 5 forex day trading strategies

There are multiple day trading strategies that you can use, including trend trading, swing trading, scalping, mean revision, and money flows. Day trading itself isn’t a strategy – it’s a trading style where you don’t keep a trade open overnight.

  1. Trend trading
  2. Swing trading
  3. Scalping
  4. Mean reversion
  5. Money flows

1. Trend trading

Trend traders attempt to make money by studying the direction of asset prices, and then buying or selling depending on which direction the trend is taking.

If the trend is upwards, with prices making a succession of higher highs, then traders would take a long position and buy the asset. If the trend is downwards, with prices making a succession of lower lows, then traders would take a short position by selling.

Trend trading isn’t exclusively used by day traders as positions can be kept open for as long as the trend continues. However, if you’re sticking to intra-day trading, you’d close it before the end of the day.

Charts showing examples of conditions that are favourable for trend trading

2. Swing trading

Swing trading is all about taking advantage of short-term price patterns, based on the assumption that prices never go in one direction in a trend. Instead, swing traders look to profit from both the up and down movements that occur in a shorter timeframe.

While trend traders often seek to take advantage of long-term market trends, swing traders tend to be more interested in the small reversals in a market’s price movement. They attempt to spot these reversals ahead of time, and trade to make profits from smaller market movements.

A chart showing an example of favourable conditions for swing trading

3. Scalping

Scalping is a very short-term strategy where traders aim to take small but frequent profits, focusing on achieving a high win rate.

The theory is that you can just as easily build a big trading account by taking smaller profits time and time again, as you can by placing fewer trades and attempting to lock in profits in the long run. Scalping requires a very strict exit strategy as losses can very quickly counteract the profits.

Scalpers often close positions before the end of the day because the smaller profit margins from each trade can quickly be eroded by overnight funding charges.

A chart showing an example of favourable conditions to use scalping in day trading

4. Mean reversion

Mean reversion is based on the theory that prices – and other measures of value such as price-to-earnings (P/E) ratios – eventually move back towards the historical mean.

The strategy uses technical analysis, such as moving averages, to identify assets whose recent performance has differed considerably from their historical average. Mean reversion traders will then take advantage of the return of the price to its average.

A chart showing favourable conditions to use mean reversion as a forex day trading strategy

5. Money flows

The money flow indicator signals whether an asset might be overbought or oversold using the asset’s trading volume and price. It works by comparing the number of trades from the previous day to the current day, to determine whether the money flow was positive or negative. A reading of 80 or higher generally indicates overbought conditions and is a signal to sell, whereas a reading of 20 or below usually indicates oversold market conditions and is a signal to buy.

A chart showing an example of favourable conditions to use the money flows trading strategy

1. Choose how to day trade

To become a forex day trader, you must choose your preferred trading product. With us, you can day trade forex via spread bets or contracts for difference (CFDs). These derivatives are popular for day trading, as there’s no need to own the underlying asset you’re trading. This means that you can open and close positions much faster, speculating on whether the price of a market is rising or falling.

2. Create a day trading plan

Before you start to day trade forex, it’s important to outline exactly what you’re hoping to achieve and be realistic about the targets that you set for yourself. A trading plan defines your objectives and how you’ll work towards achieving them.

Among the factors that you can include in your trading plan are position sizes, risk tolerance, trading strategies, hedging correlated positions, and level of volatility. In preparation to start trading, it’s important to be realistic, eg, noting that day trading is usually not a viable substitute for employment income.

Another point to consider is how you’ll use fundamental and technical analysis to decide when you’ll enter and exit the market.

  • If you choose to look at fundamental analysis, your day trades will likely revolve around information from sources such as macroeconomic data announcements and breaking news
  • If you decide to use technical analysis, you’d likely focus on chart patterns, historical data, and trading indicators

3. Learn how to manage day trading risk

Creating a risk management strategy is a crucial step in getting ready to start trading. Traders can put measures in place to minimise any potential losses. As markets can be volatile, with unpredictable movements, the use of risk management tools such as stops and limits is vital for traders of all experience levels.

There’s nothing wrong with predictions that don’t pan out – and taking a small loss as a result – but incurring a big loss due to inefficient risk management is perhaps the quickest way to end a journey as a short-term trader.

There’s debate over whether a trader should target a high win-loss ratio or look more closely at the risk- reward ratio. Successful day traders will often have low win rates, even below 40%, but will look to target a risk-reward ratio of at least 1:2 – meaning that the trader expects to double the money that they’re willing to risk.

4. Open and monitor your first position

Once you’ve drawn up a trading plan and you’re ready to get started, you can open your first position. You can place both long and short positions within a single trading day.

  • If you think that the market price is going to rise, you’d ‘buy’
  • If you think that the market price will fall, you’d ‘sell’

Remember, as a day trader you’ll likely be opening and closing multiple trades in a day, so it’s important to keep up to date with relevant market events or breaking news.

At the end of the day, it’s time to close any trades that you still have running. Trades must be closed before 10pm UK time to avoid overnight funding charges. Keeping a record of successful and unsuccessful trades throughout the day can be a useful practice. You can analyse your performance day by day and you might spot lessons to be learnt – allowing you to act accordingly, going forward, for more favourable results.

FAQs

Is forex day trading a good idea?

Forex day trading is a good idea for traders who want to enter and exit positions in the same day, while avoiding overnight funding costs and potential overnight market movements. Forex day trading requires a lot of time, focus, and dedication, so it isn’t commonly used by part-time traders. But day trading shouldn’t be regarded as a way of earning a stable income as it’s unlikely to sustainably fulfil this function.

Can anyone day trade forex?

Yes, anyone can trade forex if they have a live, funded trading account – but it’s important to lay the groundwork for a solid foundation. Before you start trading forex, there are a few crucial steps to take like learning how the forex market works, developing your trading knowledge, and creating your trading plan (including a risk management strategy).

How can I learn about forex day trading?

You can learn about forex day trading through various resources that we provide free of charge, including news and trade ideas, strategy and planning, IG Academy, and IGTV.

Is forex day trading risky?

Like all trading activity, forex day trading is risky – so you must always take the necessary steps to manage your risk efficiently. The use of leverage with financial derivatives means that you’ll open your forex position at a fraction of the notional value, but both potential profits and possible losses are magnified to the full value of the trade. It’s also important to consider the market’s liquidity, volatility, and trading volume before you start to day trade.

Can I practise forex day trading?

Yes, you can practise forex day trading for free on our demo trading platform.

Develop your forex knowledge with IG

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