There are two types of trading in the forex market as it is open 24X7. These are:
- Intraday trading
- Interday trading (Explained in part 2 of the article)
Traders call day trading as intraday trading. This is a kind of trading in which the forex traders open and close the position in the same business day in a hope to gain profits, but they close all the positions regardless of profit or loss. Day trading is done by those who do not want to take any risk associated with the overnight toggling of the markets.
Following are the four types of strategies applied by a day trader:
- Momentum Trading
- Daily Pivot Trading
The strategy of fading in the day trading was developed keeping in mind that the markets never follow a single trend and keep on changing. Traders who use this strategy put money against the prevailing trend and make money when the market reverses. However, it is a highly risky strategy, but those who are proficient in fading can make good profits.
Trading under this strategy is done on small market movements. It was developed because in a day trading it is hard to finalize if the market will keep on going bullish or bearish. So the traders take small ups and downs of the market to make profits. However, in this strategy they have to put in an enormous amount as otherwise small movements cannot amplify the profits. Although the profits are very high, the losses are amplified in a similar way.
This strategy is the opposite of fading as the traders put in money in the current market trend. If the market is going bullish, they buy, and if it is going bearish, they sell. There are tools that many brokers provide to analyze the direction of the trend. The most common among all are RSI and MACD.
Daily pivot Trading
In this type of trading strategy, the trader uses a statistical table known as a pivot table. Trading using pivot tables is effortless as it acts as a virtual advisor for opening and closing the position. Traders can quickly identify pivot point, support, resistance and other trading points. This is good for ensuring that the entry point that a trader has chosen is correct or not.