September 23, 2010

Forex Day Trading - Why Is It So Hard To Make Money?

Anyone who has ever tried their hand at forex trading will know just how difficult it is to make money on a consistent basis. It becomes a lot easier when you use a few technical indicators to help you find high probability set-ups, particularly when you focus on the longer term charts such as the 4 hour or daily charts, for instance. However it is significantly more difficult when you try and trade the markets on a short-term basis. So why is this?

Well the main reason is simply because technical analysis does not always work as well on the short-term charts. You only have to spend a few hours watching the 1 minute and 5 minute charts to find this out for yourself.

Similarly you will also find that not only does the price quite often move in a random manner during the day, but there will also be times when the price simply doesn't go anywhere. Therefore it becomes practically impossible to generate any profits.

To demonstrate this point, take a look at the 5 minute chart of the GBP/USD from earlier today:


Now normally you would expect the price of the GBP/USD to move quite significantly in the first few hours of trading, and sometimes in the overnight session as well. However today the price has remained close to the central pivot point all day so far.

You can see that the Supertrend indicator has changed colour several times so far, which indicates a change in trend, but any subsequent trends have been short-lived. You can also see that any breakouts that have taken place have run out of momentum very quickly. So any day traders attempting to trade the GBP/USD pair today will have found things very difficult.

I'm sure the price will break out of this narrow trading range and move away from the pivot point at some point today, but I just wanted to illustrate just how difficult forex day trading can be, even if you're a seasoned professional.

I do day trade the markets myself using a few of my own systems, as well as the highly effective Forex Morning Trade system (which kept me out of trouble today because the trading conditions were not met), but it's not something I would recommend for beginners unless you have a clearly defined strategy.

(Edit: Re the Forex Morning Trade system, I've just noticed that I looked at the 5 minute chart this morning instead of the 15 minute chart. There was actually a sell signal given which would have generated a profit of 40 pips. Oh well, I guess the odd mistake is inevitable when you're getting up at 6.15 every morning).



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6 Comments on Forex Day Trading - Why Is It So Hard To Make Money? »

September 24, 2010

James Q @ 3:57 am:

Well done James… I enjoy reading your blog and it's great to read what appears to be honest forex advice, something which is rather hard to come by!

Frank Page @ 4:53 am:

Dear James,
I disagree! Day trading is easy when you know what you are doing. I daytrade every day and have not had a losing trade in 3 weeks! Also I do not use any indicators or ma's etc, only price. The solution to sucessful daytrading is fairly simple i.e. have a daily target (pips) - mine is 10/day. Sacale the trade size to match your account size. Increase the trade size as your account grows. I do this on a daily basis! At the moment I am making around 20%/ week. Even better I only trade for a few hours in the afternoon (I live in Vietnam). Another point worth mentioning is I don't listen to the fx news or online "gurus". I only rely on my own judgement!

September 27, 2010

theKimsta @ 11:31 am:

Hey James, keep up the good work.

I'm also trading forex using the 4-hour chart and an indicator (MA crossover). I found this has been working fairly well.

Frank, I am also interested in your strategy! If you have an account size of, say, $10,000 what trade scale would you use personally? How many pips from entry is your stop loss (on average)? How much do you risk per trade? Thanks for sharing in advanced!

September 28, 2010

Hedgehog @ 5:13 am:

Frank, I guess what James is trying to say is, day trading may not be every one's cup of tea. It can be daunting and very stressful if you are not well aware of price action and not in front of the screen at all times.

To each his own I suppose.

BTW, great work here James.

December 23, 2010

verity @ 9:28 pm:

hi,i am looking for some advice on the forex morning trade system. i have no experience in anything like this, and wondered how difficult it would be for a total novice?

March 17, 2011

NVP @ 8:57 am:

Hey James

I am not in total agreement re the Short term vs long term debate

each TF has its benefits and its disadvantages…you just need discipline and experience in knowing what to do

mostly its about understanding the market dynamics and your own systems inside out

some interesting pieces here on MA's - thanks


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