When Forex traders talk about intraday trading, they are referring to buying and selling currencies (currency pairs) on the same day. Day traders often look small price movements and use large amounts of leveraged capital to make money with these little movements. In general, they look for markets with high liquidity – where large volumes of trades and sufficient market participants ensure that deals are closed instantly. Liquid markets (like the main currency pairs) also offer tight spreads – which means that the transactions are more profitable – and adjusted slippages, ensuring that trades are closed in the quoted price.
However, there are actually a number of daily trading strategies – including trading against the trend, daily pivots, momentum etc. Each of these similar approaches is used to identify an entry point, but the exit strategy is different in each case.
Entry Strategies for Day Trading
Intraday traders often use three tools to identify entry points. The first are intraday candlestick/bar price charts – which allow them to see the price action more graphically. Then we have the technical indicators such as moving averages, oscillators, support and resistance levels, trend lines, etc. Third, traders use news sources in real time, as these give instant visibility of any news that could move the market price.
The Level II quotes are also important (in some markets), as these give traders a view of individual orders waiting in the order book.
For example, traders look for specific candlestick patterns to identify a possible entry point. One of the most reliable of these is a reversal pattern called doji pattern. First, they look for a doji – this is when the pattern appears as a cross signs or plus sign (+), indicating that the candlestick opened and closed at the same price level. Then they use technical indicators showing whether there is greater likelihood that a trend change occurs. Finally, they investigate if there is important news that can cause too much volatility in the market. If all these factors are aligned, then they enter the market.
Trading against the trend (Fading)
In the following article there is a complete collection of Forex daytrading strategies: The best Forex daytrading strategies