Day Trading
Day trading involves opening and closing positions within the trading day.
It is a popular trading strategy where you buy and sell over a time frame of a single day’s trading with the intention of profiting from small price movements.
Day trading is another short-term trading style, but unlike scalping, you are typically only taking one trade a day and closing it out when the day is over.
These traders like picking a side at the beginning of the day, acting on their bias, and then finishing the day with either a profit or a loss.
They DON’T like holding their trades overnight.
Day trading is suited for forex traders that have enough time throughout the day to analyze, execute and monitor a trade.
Typically, day traders rely heavily on technical analysis when executing their trades.
Monitoring short-term price action is used to identify optimal entry and exit positions.
If you think scalping is too fast but swing trading is a bit slow for your taste, then day trading might be for you.
You might be a forex day trader if:
- You like beginning and ending a trade within one day.
- You have time to analyze the markets at the beginning of the day and can monitor them throughout the day.
- You like to know whether or not you win or lose at the end of the day.
You might NOT be a forex day trader if:
- You like longer or shorter-term trading.
- You don’t have time to analyze the markets and monitor them throughout the day.
- You have a day job.
Some things to consider if you decide to day trade:
Stay informed on the latest fundamentals events to help you choose a direction
You will want to keep yourself up-to-date on the latest economic news so that you can make your trading decisions at the beginning of the day.
Do you have time to monitor your trade?
If you have a full-time job, consider how you will manage your time between your work and trading. Basically….don’t get fired from your job because you are always looking at your charts!
Types of Day Trading
Day traders looking to maximize intraday profits often use one or multiple of the following day trading strategies.
Trend Trading
Trend trading is when you look at a longer time frame chart and determine an overall trend.
Once the overall trend is established, you move to a smaller time frame chart and look for trading opportunities in the direction of that trend.
Using indicators on the shorter time frame chart will give you an idea of when to time your entries. For an example of this style of trading, see Pip Surfer’s world-renowned Cowabunga System.
First, determine what the overall trend is by looking at a longer time frame.
You can use indicators to help you confirm the trend.
Once you determine the overall trend, you can then move to a smaller timeframe and look for entries in the same direction.
Remember this? It’s called Multiple Time Frame Analysis!
Countertrend Trading
Countertrend day trading is similar to trend trading except that once you determine your overall trend, you look for trades in the opposite direction.
The idea here is to find the end of a trend and get in early when the trend reverses. This is a little riskier but can have huge payoffs.
In this example, we see that there was a long and exhausted downtrend on the 4hr chart. This gives us. an indication that the market may be ready for a reversal.
Since our thinking is a “counter trend”, we would look for trades in the opposite direction of the overall trend on a smaller timeframe such as a 15-minute chart.
Traders who use this strategy need to be quick to spot the end of a trend in order to open a position at the optimal entry point.
This strategy is fighting the trend and can work against traders at times.
Remember that going opposite of the trend is very risky, but if timed correctly, it can have huge rewards!
Countertrend trading favors those who know recent price action really well and so know when to bet against it.
Range Trading
Range trading, sometimes referred to as channel trading, is a day trading strategy that starts with an understanding of the recent price action.
A trader will inspect chart patterns to identify typical highs and lows during the day while keeping a close eye on the difference between these points.
For example, if the price has been rising off a support level or falling off a resistance level, then a trader might choose to buy or sell based on their perception of the market’s direction.
This is known as “trading in a range“, where each time price hits a high, it falls back to the low. And vice versa.
A day trader who is using this strategy and is looking to go long will buy around the low price and sell at the high price.
A day trader who is using this strategy and is looking to go short will sell around the high price and buy at the low price.
Most range traders will use stop losses and limit orders to keep their trading in line with what they perceive to be happening in the market.
A stop loss order is a point at which a position is automatically closed out if the price of the security drops below the trader’s entry point.
A limit order is the automatic closing of a position at the point where the trader perceives a profitable run could end.
Range trading requires enough volatility to keep the price moving for the duration of the day, but not so much volatility that the price breaks out of the range and starts a new trend.
But if the price does break out, there’s a strategy for that as well…
Breakout Trading
Breakout trading is when you look at the range a pair has made during certain hours of the day and then place trades on either side, hoping to catch a breakout in either direction.
This is particularly effective when a pair has been in a tight range because it is usually an indication that the pair is about to make a big move.
Your goal here is to set yourself up so that when the move takes place you are ready to catch the wave!
In breakout trading, you determine a range where support and resistance have been holding strongly.
Once you do, you can set entry points above and below your breakout levels.
As a rule of thumb, you want to target the same amount of pips that makes up your determined range.
Make sure you check out our “Trading Breakouts” lesson so you get this down pat!
News Trading
News trading is one of the most traditional, predominantly short-term focused trading strategies used by day traders.
Someone who is news trading pays less attention to charts and technical analysis. They wait for information to be released that they believe will drive prices in one direction or the other.
This information could be a report releasing economic data, such as unemployment, interest rates, or inflation, or simply breaking news or random presidential tweets.
To do well with news trading, day traders tend to have a solid understanding of the markets in which they’re trading.
They develop the insights to determine how the news will be received by the market in question in terms of the extent to which its price will be affected.
They will be alert to various different news sources at the same time and know when to enter the market.
The drawback of news trading is that events that cause substantial movements in prices are usually rare.
More often than not, the expectations of such events are factored into the price in the run-up to the announcement.
If you’re interested in news trading, we devote an entire section to it in our School of Pipsology called “Trading the News“.
What is ICT Trading in Forex?
You may or may not have heard the term ‘”ICT”’ thrown around in the forex trading websites, blogs, and communities.
This term has been around in the industry for many years but gained a huge amount of traction in the last 2-3 years.
ICT means Inner Circle Trading.
Inner Circle Trading is owned and operated by a well-known trader Michael Huddlestone, who has over 20 years of experience in trading the markets.
In this article, we’ll look at the history of ICT, how you can use this trading style, and everything you need to know! So, let’s get into it!
ICT Trading In Forex
The ICT trading methodologies and strategies were very much the first of their kind in the online retail trading space.
Previously, there were more or less just technical price action traders, fundamental traders, and traders trying to leverage supply and demand.
However, the ICT methodologies manage to capture all of these different elements cohesively.
The methodologies essentially rely on finding great prices, using institutional footprints within the markets to follow what Michael believes the market movers are doing.
These strategies are executed at certain times of the trading sessions, to ensure trading volume is high enough to move price swiftly. There is a “killzone” in the trading sessions where ICT traders like to place their trades.
The methods utilize, in essence, supply and demand within the markets but in a much more intelligent way than the retail industry has ever seen before.
This all sounds great, in principle and we’ve seen traders claim to be able to do this and read institutional order flow time and time again but ICT is the first group of traders that seem to be able to back up their claims.
The strategies are still subjective, which can make it harder to find profitability, however, there are enough ‘rules’ and methodologies for traders to build fairly robust rule-based systems from this style.
ICT Trading Strategy – The Silver Bullet
There are a number of trading strategies that ICT teaches, arming traders for all kinds of times and situations within the market.
One of these strategies is the well-known ‘silver bullet’ strategy. This strategy provides a very high win rate and typically a great risk-to-reward ratio for traders.
The strategy must be taken during a period of high market volume. For example, this is typically 10 am-11 am ET, but 3 am-4 am ET also works.
Once we have the timing, you need to find your trade confluences.
You’re looking for a price to breach the high or low of the previous one-hour candle in either direction. Once complete, you’ll be looking to trade back into the candle range.
Once complete, you need to create your bias and find an entry into the trade, using the order confluences that ICT teaches – finding an entry shouldn’t be hard!
Then you set your stop loss, take profit, and let the trade play out.
It’s important to assess a range of influencing factors when playing your take profit. These things include:
- Daily highs and lows
- Session highs and lows
- Weekly highs and lows
- Returning to NWOG
- Movement away from NWOG
Backtest this trading strategy and let us know how you get on!
It’s one of the simplest and best-covered strategies on YouTube when looking at ICT strategies.
Where Did ICT Trading Methodologies Come From?
ICT-style trading has grown increasingly popular over the last few years, with Michael consistently publishing a huge amount of value on YouTube.
After some years, this got the attention of some larger ‘influencers’ within the online trading community. These influencers abandoned their existing trading strategies, most of which were support and resistance-based, and moved over to learning from Inner Circle Trading.
With their large followings, this led to ICT trading becoming a well-known style within the online retail trading space, with thousands of traders flocking to learn the strategies.
Michael has posted thousands of YouTube videos, trading various sessions and banking a great amount of profits with pinpoint accuracy of the market.
The accuracy and level of understanding of how banks are moving money through the forex markets are what drew many traders to jump on board and try to learn this method of trading.
Where Can You Learn The ICT Trading Style?
You may be wondering where you can learn the ICT trading methodologies. Luckily, you have a few options as to where you can actually learn from!
The first option and arguably the best option is to learn directly from Michael over at Inner Circle Trading. After all, this is his logic and methodologies that are being used so it makes sense to learn directly from him!
The downside to learning from Michael, from what we are told, is the content is not laid out in an easy-to-digest manner, meaning it takes traders a very long time to learn and actually figure out how the methodologies can be applied within the markets.
The second option is to learn from some of Michaels’s students who have gone on to become profitable traders and create courses of their own.
The theory is that they have already made all of the mistakes you’re going to make and can deliver the course in a more digestible manner.
Ultimately, learning from ICT themselves will most likely be the best move, it just won’t be a very quick process.
Is ICT Trading Profitable?
The million-dollar question – is the ICT trading strategy actually profitable?
Well, there is no straightforward answer to this.
The ‘strategies’ Michael teaches are more methodologies than anything, not complete strategies most of the time.
It takes traders hundreds, if not thousands of hours of piecing together and digesting their content to make sense of it and create a profitable trading strategy.
The point is, that the ICT trading methodology is profitable for some traders but will not be profitable for many.
This is just the nature of learning a trading strategy that can be seen by some as subjective or manual. Trader A will most likely always have slightly different trading results from Trader B.
So, yes, the ICT methods are profitable if you refine, backtest, and study them over the course of many months.
If you’re expecting to just copy and paste the strategies and become profitable overnight, this won’t be happening.
Does ICT Trading Work For Prop Firm Funding?
So, you’re thinking about getting funded by a prop firm like The5ers – can the ICT trading strategies get you there?
The answer is yes, in theory!
If you can apply the methodologies and become a profitable trader, it’s a great fit for what most prop firms are looking for.
The strategies teach using tight stop losses, sensible risk management, trailing stops and not holding over the weekend/overnight, etc.
These are all going to fit nicely into the ruleset offered by most prop firms.
In fact, we have many funded traders that use these approaches in their trading, whilst trading our capital!
In Summary – What Is ICT Trading In Forex?
In conclusion, ICT is a trading methodology coined by Michael Huddleston, a well-known forex trader with over 20 years of experience in the space.
The strategy and methodologies rely on finding great prices, using opportune timing and institutional order flow to scalp the market with a high risk to reward and a very high win rate.
These strategies have grown in popularity and led to many traders becoming prop firm funded!
About The 5ers
The5ers is the leading funding company for forex and indices traders. Since 2016 we have companioned thousands of traders from many different backgrounds, skill levels, trading styles, and personalities. Our aim is to create a supportive and professional trading workspace with a meaningful skill progression toward trading success. The5ers program is built to accomplish skill enhancement, and meaningful learning experiences while trading in a professional and rewarding workspace. Our ethics and transparency are always at the highest standards. We are creative and innovative and fully committed to our traders while making no compromises for our professional standards.
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