The foreign exchange market is a vast trading market with a variety of trading instruments. Although the forex market, as an international capital speculation market, has a much shorter history compared to stocks, gold, futures, and interest markets, it has developed at an astonishing speed. Daily trading volume has grown from $80 billion ten years ago to over $3 trillion currently. Clearly, the forex market is the largest financial market globally and could even be considered the largest commodity market. Trading such an astonishing commodity market naturally attracts many short-term investors who surf daily, which in turn drives more hot money to circulate within it. The shortest-term traders are day traders who enter and exit positions on the same day. Leveraging the forex market's ability to go both long and short, they may trade dozens of times in a single day.
Someone once asked me: What's the difference between forex investment and flipping a coin? Aren't the chances fifty-fifty? My response was that these two concepts are not the same. A coin toss results in either heads or tails, each result independent of the previous one. This means the probability of heads or tails is always 50%. However, the rise and fall of forex investments or other financial markets occur within time and space ranges, and their trajectories or resonances can be identified from their charts or historical performances. Thus, the outcome of their rise and fall is not like a coin toss at 50% against 50%, which is the essential difference.
Day traders, like slippery little fish darting among many large whales and sharks, flexibly enter and exit amidst complex big and small trends, using each day's node as a pivot to gain profit. This relies more on how to always maintain control in the pursuit of trajectories.
1: Always Control the Initiative
Day traders face constantly changing market conditions daily, and controlling the initiative is crucial. What does controlling the initiative mean? Simply put, let your trading system control your trades rather than letting market fluctuations dictate them. In short, watch more and trade less. It's whether you control your trading or the volatile market controls your trading that makes the fundamental difference.
Key Points: Control daily trading volume - There are only 1 to 3 worthwhile entry opportunities daily, sometimes none at all. Not every day's market condition suits your trading system (not every day's market condition is conducive to your trading habits).
Set stop-loss and take-profit levels for each trade and strictly enforce them - The stop-loss in a "day trading" system is even more critical than in trend trading because adhering to stop-loss allows day traders to remain rational; taking profits ensures traders aren't burdened by greed.
Withdraw promptly if you have strong doubts about a trade - If you already have strong doubts about a trade, is there still a need to proceed? Once you've traded, don't ask "why". If you have doubts, close the position immediately or close most of it while leaving a small portion to test.
Restraint: When emotions are unstable after continuous gains or losses, appropriately step out to rest and adjust. Only those who can master themselves can master trading.
2: Market Fundamental Analysis
For myself, I record all the economic indicators that countries will release this week on paper every first day of the week, then combine the information to be released on the day to make a judgment on the day's market conditions. Understanding fundamentals is an important way for day traders to grasp the short-term market ecosystem. One point to note is that fundamentals should not just be viewed on the day but should be analyzed in conjunction with the week's fundamentals.
3: Trend Guidance for Day Trading System
Even "day traders" should not trade against the trend. Focus on bullish short-term trades in a bull market and bearish short-term trades in a bear market. Fewer trades with more observation during short-term corrections, as correction trading implies high-risk trading in a trending market.
Two Trends Day Traders Should Pay Attention To:
1. Medium-term trends of one month or three months directly affect your understanding of the market state. To clear up confusion in day trading, first understand the big trend.
2. Three-day trend - This refers to the trend of yesterday, today, and tomorrow. We day traders don't need to predict next week's market; we only research the current market, concentrating resources to deeply study how we respond to the current market.
4: Technical Indicators and Effective Intuition Reactions
Intuitive reactions and technical indicators are the main means of entry for "day traders." Intuition without knowledge and experience accumulation is often an illusion (of course, illusions can sometimes profit, but only sometimes), and complicated technical indicators can only confuse. Intuitive responses after profound understanding of the market and economics are important prompts. Achieving this requires extensive reading and daily research, as well as individual talent. There are no shortcuts here, nor can everyone achieve it.
Choose two or three indicators that resonate with you, understand their operating principles, trust them completely, and incorporate them into your trading system. Only specialization leads to expertise, and only simplification leads to precision.
Friendly Reminder: The one-hour chart combined with indicators is the best choice for day traders, and interested friends can try it.
5: Diligently Check the Trading System and History, Summarize and Reflect on Shortcomings
Even experienced traders cannot avoid emotional interference that distorts the trading system, so monthly inspections of the trading system are necessary. For us fast-in-fast-out day traders, the likelihood of trading system distortion is significant and fatal, as our frequency is much higher. Reflecting on your trading history is an upgrade of your trading system, akin to system upgrades, extracting the essence and discarding the dross.
Write a trading journal, recording each transaction's situation. At the end of each month, take out your trading journal and check each transaction against the month's historical charts. Why did profitable transactions earn, why did losing transactions lose? Was each transaction conducted under the same system? Were there any transactions outside your trading system, and why did they occur? What deficiencies exist? What needs improvement?
6: Fund Management and Risk Control
No matter how refined and sophisticated an investor is, no one has a 100% profit capability. Therefore, good fund management and risk control can prevent significant losses when the trading system becomes distorted, and this is the correct trading attitude every investor should have. There are already many articles introducing this, so I won't elaborate further.
7: Release Pressure
The pressure borne by "day traders" is much greater than others. Too much pressure will inevitably affect the trading mindset and decision-making, so learning to release pressure is essential. Plan regular workouts each week, gather with friends on weekends, or play sports; these are all great options.
8: Learning Never Stops, Knowledge Drives Experience Practice
How much time do you spend reading books and newspapers daily? Do you have a fixed subscription to journals? How much money do you spend annually on self-improvement? Regarding books, I won't recommend specific ones as many posts have already discussed them. Personally, I firmly believe that the financial industry is the best profession in the world, and studying philosophy, history, psychology, and macroeconomics is the best way to master finance.
In summary, although the day trading system is a relatively short trading process, its composition and trading process must still adhere to the necessary conditions of market trading. The above points are some of my shallow insights in the forex market, hoping they provide some help to investors.
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