Forex Day Trading- 2 Factors You Need to Consider
Posted by | Posted in Day Trading | Posted on 18-09-2009
One of the most general ways to make profit with currency day trading is trading the forex news. That is, opening short term trades as per future currency trading reports. Yet, as most currency traders recognize, this is a highly risky trading system and might end-up into a losing position. You could use a good Fx trading software like FAP Turbo or the new ivybot for normal trading. But the forex day trading according to fx news is different. In this article we look at 3 most important factors that you need to consider if you need to gain from day trading according to foreign exchange news.
1. Market Sentiments
Failing to consider market hope into account is a very regular fault in reports based day trading. Let me explain this with an example. Let’s say there is an forthcoming notice of US trade figures. You are expecting this announcement to be good for the US dollar, so you open a trade right before the broadcast goes live.
But you failed to consider the fact that the currency trading market in general was expecting this announcement to strengthen the US dollar, thus actually, the price movement was already happening little by little in the days or even weeks prior to the announcement. When the announcement is live, there will be big price movements only if the announcement is drastically different from expectations.
In other words that your trade will only pay you well if the announcement is a lot more encouraging than everybody anticipated. If the report figures are good but not as advantageous as expected, the USD might go down because the market hope before of the announcement were very high. Accordingly you might in fact lose out.
2. Slippage
Slippage is the variation between the price you wanted to get while placing the trade and actual price that your trade gets filled at. Slippage depends on the broker to some level, but during an announcement everyone can get affected just because the price in the market changes in every second.
For example if you are not sure of how an important financial report will go but you are doing in foreign exchange day trading and you are hoping a breakout one way or the other, you might place an order to open a long trade if the price goes up to a specified point, say 1.2010, along with a corresponding instruction for a short trade if the price falls.
Yet, you could be in trouble if the price unexpectedly jumps ahead of your trigger. Say it shoots up to 1.2040 . In that circumstances you will most likely find that your order has been filled at a higher price than you planned, say 1.2030. In case the price then drops, as it regularly does after a run through, the price might stay back at 1.2020. If your order had been filled at 1.2010 that would be fine, but at 1.2030 it is not. Therefore slippage is one more issue that can can cause losses in day trading if you are not vigilant.
You can see a more detailed guide on forex trading here.
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