The opportunity to put on a trade was governed by the cycle of day and
night. But a unique characteristic of Forex trading is its round the clock
sequence of trading. Starting Sunday when the sun rises in Asia, until
Friday late afternoon, when the New York markets close, Forex trading is
available. So the question arises, what is a Day trade in Forex, if
technically Forex is a continuous week of trading? To answer that question
we do not need to delve into the nature of human circadian biorhythms. One
has to be arbitrary. We can effectively define a Forex day trade as a trade
that is completed during the waking hours of a trader.
An attractive aspect of the Forex market is
plethora of opportunities to trade during a day. Let's try to quantify how
many good opportunities does the Forex Day Trader have on a given day? A
sensitivity analysis would show that we have 6 Big Currency Pairs (EURUSD,
GBPUSD, USDCHF, USDJPY, USDCAD, AUDUSD).
At least 2 commonly traded crosses (EURGBP, and EURJPY). This provides 8
currency pairs to provide opportunities for the Day trade. When each
currency pair's chart intervals are examined carefully for an evolving
trading signal, we have geometrically increased the potential for trades. A
Day trade in Forex can often provide more opportunities to trade than
available capital in an average account. The trader need not rush to trade,
but choose among competing opportunities.
So if we
estimate that we can expect 2 opportunities per currency pair during any
given 4 hour period, we can expect 16 trading opportunities that can justify
putting on a trade. If we take extreme rationing of these opportunities and
select only 1 trade per 4 hour period per currency pair, we have more than
enough to allow a person to take Forex Day trading as a serious opportunity.
A common occurrence is a cluster effect where the action in one currency
pair cascades across all of them and, suddenly, almost at the same time,
there are numerous opportunities! The distribution of trading opportunities,
however, is not random, and patience in waiting for the right opportunity is
a worthy skill to acquire. During any given day in Forex Trading, patterns
emerge inviting a trade. The skilled trader waits for a high probability
trade where confidence is high that the trade will work. Contributing to
confidence may very well be the trader's own psychological mind set and
optimism. Ultimately, the Profit and Loss Chart will demonstrate whether one
is engaged in wishful thinking or a winning game. Whether one looks for a
quick grab of profits that will pay for a dinner date, or for a trade that
makes the month's mortgage payment, Day trading Forex has embedded in its
market patterns, the potential for achieving a variety of trading goals.
Forex Day trading offers a range of opportunities but there is an entrance
requirement
Putting on the trade,
after all, is what the analysis leads to, but it is not a spontaneous event.
While there is no single rule of action on what a price trigger is, we can
narrow conditions to be such that the trade is reasonable and can be
supported by a combination of technical factors. For example, in the chart
below, the price is probing the lower channel line and a trade going long
would coincide with a confirmation that the position is oversold. Notice
that in the example below, Relative Strength Indicator is breaking its own
trend line. This is a very useful confirming tool when oscillators are used
in technical analysis.
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