Forex Day Trading takes a specific type of personality. You have to have enough time to sit and watch the market all day and enough willingness to trust your gut and not think too much before you are ready to trade in order to be successful at Forex Day Trading. When you like to know what your results are before you go to bed at night and do not want to wait until the next day to make your decisions, day trading might suit you well.
One expert recommends starting to trade with at least $3000 and then risking only 1% of your capital with each trade, using leverage, this allows you to trade risking $30 or $50 on a $5000 initial investment. That means using leverage you can purchase over $80,000 of currency and make a significant monthly profit if you are successful in finding the right trades and winning at least half the time. It is very important to remember that this plan does not leave room for any significant losses based on leverage, because that type of loss can empty your whole trading account in one fell swoop. Also, important to realize is that you have to emotionally be able to tolerate losing regularly. This plan is not for the faint of heart. Day trading is a very stressful way to make money.
In order to make money as a Forex Day Trader, you need to manage your risk very carefully. That is usually best done using stop losses. In order for your wins to pay off at a higher rate than your losses lose, you can use stop losses. Set your stop loss at 5 pips and your target for a winning trade is 8 pips. That will mean that if you win only 50 percent of the time you will still come out way ahead. Using leverage of 30:1 you can make a significant profit on the winning trades.
ECN brokers are usually the best type to use for day trading. These brokerages usually offer the smallest spreads, although they typically charge commissions where other types of Forex brokers are not commission based but have a larger spread. Using a broker with a larger spread makes profitable day trading more difficult and that is why it seems most profitable day traders use ECN brokers.
The most common pair traded by Forex day traders is GBP/USD. With this pair, say you are risking $50 on each trade but your potential profit is $80 per lot. That means if you win more than half the time, you will be making money. Assuming 55% of your trades are profitable, and you pay a small commission, you are likely to be able to see a profit of more than $1000 per month on a $5000 investment. This is not insignificant. It is a very nice profit but keep in mind that it requires hard work, lots of time and careful risk management.
