In today’s guide, we will discuss important things you need to know about day trading.
Day trading involves much more than just reading price action. Time, for example, is much more important than reading price action. Many of these things will likely be unfamiliar to you, but that doesn’t matter. Take in all the information calmly, and if something is unclear, ask questions!
I can imagine that the guides can be overwhelming with new information, but that’s completely fine. Make use of us! Ask questions in the chat, and we will always be there to clarify any uncertainties for you.
For now, enjoy reading!
Opportunities within the daily range
What we aim for is to capitalize on a movement that will take place within one day. Understanding this takes time and is challenging, which is why many people say it’s impossible to profit from it. However, over time, you will realize that it is indeed possible.
Not all days are suitable for day trading. The concept of day trading is often misunderstood and misapplied in the field. Day trading does not mean “trading every day.” There may be days when your strategy doesn’t come into play. In such moments, avoid forcing trades, as it will lead to mistakes. You may start seeing things that aren’t there. Even if a trade goes well during such times, it doesn’t mean it’s a good trade. It’s important to stick to a plan and execute it (and possibly improve it) consistently. As I always say, once you find trading truly boring, you’re on the right track.
If the situation plays out, you often have two opportunities in a day to enter a trade. Is this realistic? In my opinion, not really. This is the case if you can participate in all the relevant sessions and remain glued to your screen throughout.
The daily range is essentially the goal of a day trader. We want to capitalize on the expansion that will occur on that particular day. Typically, the daily range will likely be the average of the daily range over the past 5 days. This means the average number of pips over the past 5 days will determine the size of the daily range. Of course, this is not always the case, but it’s a good principle to start with. Bias will be one of the most important elements and will remain the foundation of your trade setups.
I have already written a comprehensive guide on determining bias, which you can find at the following link: https://mn-trading.medium.com/bias-6692cdf78ba3
Trading based on high timeframe trade ideas is crucial. It’s essential to have a clear understanding of what is happening on the higher timeframes. If this is not clear, the chances of your trades going wrong are very likely, and you’re essentially gambling.
Avoid taking too many trades in a day. This is subjective, but in general, trading more will not necessarily result in higher returns. Usually, the opposite is true. Taking too many trades often leads to overtrading, which causes mistakes. Personally, as a trader managing multiple prop firm accounts, I don’t have a daily target. However, in a month, I aim for a 2% to 6% return. On a daily basis, I aim for a 2 to 3R (risk-to-reward ratio). If I achieve this, I stop trading.
We will combine IPDA ranges with PD arrays. This will be the fundamental basis of a trade setup. We do not trade FOMC and NFP live; we only execute trades on a demo account.
What is the framework of a day trade setup?
How does the high timeframe order flow look? This refers to what is happening on monthly, weekly, and daily timeframes. Depending on the levels respected on these timeframes and the direction we are moving, we will execute trades on lower timeframes.
The Interbank Price Delivery Array (IPDA) will look for new levels of liquidity.
The current direction of the weekly candle — where will it trade to?
The day of the week. Some days have higher probability than others.
Time of day. This is crucial because certain moments in a day trigger price movements.
Time of day
As mentioned earlier, there are specific moments during the day when price movements are likely to occur. These are known as kill zones. There are four crucial moments in a day:
Asia Killzone (8:00 pm — 12:00 am) London Killzone (2:00 am — 5:00 am) New York Killzone (7:00 am — 10:00 am) London close Killzone (10:00 am — 12:00 pm)
Each session has characteristic properties. The Asia session is mainly suitable for trading AUD/NZD/JPY pairs. Majors related to the US dollar usually don’t move much.
London is particularly interesting for trading pairs like EURUSD and GBPUSD. In London, the high/low of the day is often formed.
New York often continues or reverses the price action that occurred in London.
During London close, if the day was bearish, we close around the day’s low, and vice versa for a bullish day.
Day of the week
This is where the economic calendar becomes crucial for me. The economic calendar should be your roadmap. Look for news scheduled for the day, the type of news it is, and consider the current weekly profile.
In conclusion, this may be a bit challenging, but this guide will form a new foundation for the content I will be releasing in the coming weeks. This general document was necessary as a basis so that we can delve deeper into the subject.
Thank you for reading, and until next time!
Written by: Daan Foppen