Trading in the financial markets has enormous potential with opportunities from the uncertainties of the markets. However, the markets also bring in risks as well for the traders. One of the most traded and high turnover markets in the world is the forex market. The foreign exchange market (Forex) deals in the exchange of international currencies among traders to make money.
The activity of buying and selling currency pairs online is called forex trading. Traders invest in the market by buying one currency and selling the other, which makes the trade of currencies in pairs. Investors exchange the currencies for a number of reasons; it may be for commercial purposes, trading or any other.
The forex market has a trade volume with investors from banks, individuals, corporations and companies etc. Traders are allowed to invest in the market 24 hours as it is an online market.
In addition, the forex trade works on a decentralised system and could be accessed from anywhere globally. Traders can invest in the market privately or through the over-the-counter market. It may include online brokers such as ABInvesting, which offer facilities to ease the trade process for investors.
Forex trading does not involve any exchange for the trade and operates via computer networks. To earn good returns from the market, traders have to understand the market, practice and know the base currency and quote currency.
Day Trading Forex
Day trading in the forex market refers to investing with the opening of the market and closing with the market. Hence, making it a day’s trade in the forex market. Traders can hold single or multiple trade positions in the forex market for day trading. The position may be for a minute, an hour, a few hours or for a whole day.
The technique of day trading is simple to understand but incorporating it in the daily process is difficult. It requires accurate decision making skills with fast execution of the forex trade. It is not easy for one to directly trade in the forex market with day trading techniques.
An expert with excellent market knowledge and understanding can use day trading in the forex market. The volatility of the market makes it challenging for the traders to invest in the forex market. Traders, therefore, need to practice the trade, gain expertise and then use day trading strategy.
Day trading is a short term day trade strategy mostly used by retail traders. The strategy needs time for analysis of the market and research before making any investment. Traders have to use technical and fundamental tools to be updated about the market and price movements in the forex trade.
There are several forex trade indicators that the investors use to day trade. Some of the indicators are relative strength index, Moving average convergence/divergence, Bollinger bands etc.
Similarly, there are day trading strategies that support traders by having a plan in advance to trade in the forex market. These include starting small, sticking to the plan etc.
Best Indicators for Day Trading Forex
The best indicators that aid traders to be successful and top-notch traders are many. Traders have to select the best ones that support the trading currency pair and the forex trade. The forex market is highly liquid and mostly depends on the movement of price; thus, technical indicators play a significant role in the forex market along with the fundamental factors having some impact.
Below discussed are the best indicators for day trading forex that help traders achieve their desired goals. So, let’s check these out:
Relative Strength Index (RSI)
A technical indicator of day trading that suggests the overbought and oversold market conditions. It measures the price movements of the currencies traded. The indicator was introduced by J.Welles Wilder Jr. It works on a scale from 0 to 100, where the momentum at 30 or below is a signal for the currency being oversold in the forex market, hence a buying opportunity for traders.
On the other hand, if the stimulus is at 70 or above, it is an overbought situation, and traders sell the currency in the forex market in such conditions. So, traders can use it in day trading to analyse the market position and trade accordingly.
Moving Average Convergence/ Divergence (MACD)
MACD is an easy indicator for recognising the price movements of the forex market. The indicator uses two chart lines; the line is created by deducting the 26 period exponential moving average from the 12 periods EMA. Where the EMA is the average price of the currency for a period of time.
The second line created in MACD is the signal line with a nine period EMA. In the indicator, traders analyse by checking the movement of these two lines. When the MACD line moves below the signal line, it is a bearish market trend. Similarly, when the MACD line moves above the signal line, it is termed as a bullish market trend.
This is a lagging indicator used in the day trading forex; these help traders determine the price high and lows with insight on forex market volatility. There are bands or lines that help traders know about the market situation. It is a technical indicator and focuses on price movements.
The middle band or line of the Bollinger band uses the 20 days simple moving average for determining the band. In this, the top band is identified by adding a twice-daily standard deviation to the middle band. Whereas the bottom band is identified by subtracting twice-daily standard deviation.
The bands help traders calculate the overbought and oversold situation of the forex market. Moreover, inform traders about the trending price of the market.
The forex market is the highest traded market with good market turnover, thus providing opportunities. A trader can easily invest in the market and earn profits if the trader makes the right decisions. However, this is not that simple; to reach success, traders have to invest a lot of money and effort.
Traders use indicators, market analysis, trading platforms and tools to research and analyse markets thoroughly. Day trading is a short term strategy; with expertise, only traders are able to succeed in such markets.