More than once I discussed my interest in day trading Forex. I found it interesting but I wasn't ready to jump. I was making excuses.
- “Day trading isn't for me.”
- “No one succeeds in day trading Forex.”
- “You need to be a pro to day trade.”
- “I don't have the right personality to day trade.”
- “I have no time to day trade.”
Just a bunch of excuses…
Then, I started to interview Forex day traders on the Desire To Trade Podcast, which made my interest for day trading peak. I was curious and gave myself a challenge.
The challenge was this: coming up with a strategy for day trading Forex and implementing it successfully.
The truth is, I had been focused on swing trading for the past 3 years and never set out to work on day trading Forex. But, through this challenge, I wanted to show that with a bit of effort anyone can come up with a trading plan and develop himself into the type of trader desired.
If you want to be a day trader, you can do it.
If you want to be a swing trader, you can do it.
The only requirement is that you accept it will require some work and you need to put your ego away (I know, that's tough).
Before going further, I strongly recommend you grab the free cheat sheet accompanying this article. It's called the Day Trading Success Cheat Sheet and it contains 10 key elements you need if you want to get started day trading Forex. I share precisely what I do to ensure I stay consistent!
Before we get into how I started day trading Forex, I want to bust some of the common myths regarding day trading. I'm hate hearing people say that it's impossible to become a successful day trader or that day trading is complicated.
Common Myth #1: Day Trading Can't Be Profitable
How can that be true?
Theoretically, you could play heads & tails, use the result to trade and still make money…why?
Well because it is absolutely possible to make money when you are only 50% right.
In fact, if you ensure that you gain 2x what you risk and win 50% of the time, you will make money over the long-run.
Common Myth #2: You Can't Day Trade If You Have A Full-Time Job
This comes up over and over again as soon as I mention day trading Forex. I'd say it is true if we are speaking of American equities. As a matter of fact, the American stock market is open only from 9:30am to 4:00pm EST on weekdays. That makes it challenging to trade for someone with a 9-5 type of job.
On the other hand, the Forex market is open 24 hours a day (5 days a week). People all around the world trade Forex, meaning that the market never stops. What's more? There are 3 major session per day: New York, London, and Tokyo.
If you live on New York time, the New York session will start at 8:00am, the Tokyo session will starts around 7:00pm and the London session will begin at 3:00am. In other words, day trading Forex doesn't mean you need to be trading during your day (you can trade early morning or at night too).
Common Myth #3: Day Trading Forex Is For Advanced Traders Only
Think about this: is driving a Formula 1 racing car for advanced drivers only?
Yes, you could argue. However, I'll be the first to tell you that those drivers are simply people like you and I. The only 2 things that distinguish them are: practice and having a plan.
F1 drivers start by racing karts. They ensure they get a feel on how to drive a car at 360km/h. Place the average driver in a F1 race car and he'll crash. Get him to practice and he'll slowly get better at it.
However, practice alone isn't what will make a driver or a trader succeed. That practice must be supported by a plan. That's called deliberate practice. Once a day trader knows what to do and does it over and over again, the results start to appear.
And it doesn't take years to get good at day trading. As long as you control yourself, execute on your plan and correct your mistakes, things can only get better.
As long as you control yourself, execute on your plan and correct your mistakes, things can only get better. Click To Tweet
How Did I Get Started Day Trading?
For nearly a month, I went back and forth, asking myself whether I should jump into day trading. At some point, I made the decision to seriously give it a tr. But I decided to go into day trading Forex like a driver would go from Karting to Formula 1 racing.
I wouldn't just jump in and trade like I did when I first started trading.
Observing The Market
Before I keep going, I'll assume you know The 3 Types Of Trades. Whatever you'll do in trading, it can usually relate to those types of trades.
I knew the market was broken down into 3 major market sessions: Tokyo, London, and New York. Therefore, the first thing I did was to open a couple of charts and watch how price moved during those sessions.
The Tokyo session is usually moderate in terms of volatility, but gets moving quickly once London opens:
The London session is usually high in terms of volatility (especially when it overlaps with New York) and trending:
The New York session is usually high in terms of volatility (especially when it overlaps with London):
Then, I wanted to see how price behaved (i.e. what types of trades are occurring most often). It is a fact that the Tokyo has a lot of fakeouts (false breakouts) while the London session is often the start of a trend due to the large number or traders and investors who get in the market.
Planning
Once I had an idea of how price moved across various market sessions, I began to put a plan on paper regarding how I was expecting to confirm, enter and exit my trades. I made plans for breakouts, reversals and pullbacks starting with a single currency pair and a single session (at first it was AUD/JPY during the Tokyo session).
Testing
The testing phase is important, but I didn't want to spend too much time testing (more on that later). With my plan written down, I started to backtest. I stopped once I knew how to spot a trade correctly and execute on it. I made sure, however, that I had data for 3+ months to have an idea regarding the win rate of my plan.
Executing
Execution really is the toughest part. It is in that phase that you determine whether you have something you are able to trade with. The reason I didn't backtest that much is because I know how crucial proper execution on the live market is. You get the real time pressure and get to ask yourself more questions about the validity of your trade setups.
At one point, while demo trading a part of my plan, I realized I simply couldn't do it because I was coming up with conflicting trade ideas and using tools I wasn't familiar with.
Refining
Whenever I wasn't comfortable with my trading strategy or took too many bad trades, I went back to analyze the trades I took. That allowed me to see possibilities for improving my trading plan. For instance, I noticed I entered way too many fakeouts during the Tokyo session. By going over all the breakouts I traded in the Asian session, I was able to figure out some of the characteristics of the ones that worked. Only adopting this analysis to my trading strategy made a huge difference.
Executing (once again)
After making changes to my initial plan, I went ahead to trade live on a reduced position size. I believe this is an essential part. You are increasing the cost of your trading education by going with the full position size right away. Only when you feel comfortable day trading and see the results over a few weeks should you start to increase your position size. However, you always want to ensure that you keep managing the risk after being comfortable trading.
If for any reason you start to day trade and encounter a losing week, don't get discouraged, but make sure you go over the charts to see which trades you took and which ones you missed.
The Top Mistakes I Made
It would be a complete lie saying that day trading Forex made me money from the first week. In fact, I made several mistakes that costed me money and I want to be fully honest about it. If you are going to jump into day trading Forex or any other trading style, you must expect losing money the first few weeks.
If you keep following the plan and study your trades, however, you'll soon break-even. Then, you should start to understand how to make money in a more consistent manner. So here are the top 3 mistakes I have made:
Mistake #1: Stop Loss Too Tight
I was used, when trading on a 4hr or Daily chart, to place my stop loss just beyond the high or low of a candlestick. That might look like this:
The entry is at the green line. This is totally acceptable on a Daily chart since the distance from the stop loss (blue line) and the 2nd low that was created is 29.2 pips. The stop loss won't be triggered.
However, on a 5 min chart, you can't place a stop loss just beyond the candlestick like that. You must account for the 1-3 pip spread. Here's an example of trade where I didn't do things right:
You probably noticed that, according to my chart on TradingView, the stop loss hasn't been hit and my trade reached the 3:1 Reward-To-Risk target, right?
In reality, that is not true…because the distance between my stop loss (placed just below the low of the candlestick) and the retest is 1.4 pips. That is less than the spread of 2.3 pips on AUD/JPY, therefore the trade was stopped out.
Mistake #2: Acting To Avoid Feeling Uncomfortable
From the moment you enter a trade on a 5 or 15-minute chart, you start to see the movements up and down. Soon, you may get captured by those movements. You start to feel uncertain about your trade. Sounds familiar, right?
It is normal. I felt uncomfortable when I first started day trading live. In fact, I was often tempted doing something to reduce that uncomfortable feeling. At first, I would move my stop loss slightly too quickly because I wanted to make sure I wouldn't lose any money on my trade.
This is a great thing to do, however doing it too early will make you close many trades at break-even without any profit.
You definitely feel more comfortable, but you miss out on a lot of big moves that retrace/pullback, and then go straight in the right direction.
At that point, I remembered Andrew Menaker saying “trading is all about dealing with being uncomfortable”. As soon as I accepted feeling uncomfortable in my trades and waited, I started to capture more profits.
After all, since you enter a trade accepting what you risk, why would you want to reduce that risk so quickly?
Mistake #3: Believing I Can Multitask
I first came across the myth of multitasking in The One Thing by Gary Keller and Jay Papasan (if you buy through this link, I'll get a small commission but you won't get charged a penny more). The authors state clearly:
“Multitasking is a lie.”
That is obviously not what most people want to believe because multitasking is much more entertaining than doing a single thing at a time. However, by multitasking you are accepting doing two things at the same time and doing none of them well.
I have perfectly noticed that when day trading Forex.
As much as I wanted to fill my downtime day trading with another activity, I noticed doing so reduced significantly my performance. At several occasions I would miss trades as I was trying to complete something else. Nearly 70% of the trades I missed due to my lack of focus were winning trades.
That can completely destroy a trading day (given that I take 1-5 trades when I day trade the first half of the New York session).
Your Turn!
I hope this article was a way for you to learn about ways to improve in day trading Forex. I strongly recommend you pick 1-2 things that you will implement in your trading.
To share more about day trading, I have prepared a special cheat sheet for you. It's called the Day Trading Success Cheat Sheet and it contains 10 lessons & key elements I learned the hard way. You can download it for free by clicking here!
If you are looking for a way to get started in day trading with a solid methodology (the one I use), you can check out The Ultimate Day Trader.
