Don't want to be stuck doing day trading like an amateur trader? Learn how pro traders set up a day trading setup here.
Like any forex strategy, day trading has its own advantages and disadvantages. But did you know that most of the weaknesses of day trading can be overcome with the right setup settings? Not only providing these solutions, designing a day trading setup can also guide you in following in the footsteps of experienced traders. This is what Abe Cofnas, a leading forex instructor, focuses on in his article column on ActionForex. So, what are the procedures for setting up a day trading setup like a professional trader?
Step One: Improve Your Perspective
One of the biggest differences between amateur and pro traders is mental readiness. Newbies often think "what can be traded today?" or “how will my 10 pip target be achieved?”, while professional traders have a more organized mindset to enter based solely on the best odds. While novice traders want to trade immediately whenever they see a small opportunity, professionals prefer to relax waiting for the right moment. So if you still often think like an amateur trader, change your perspective to be able to recognize opportunities and arrange day trading setups like a pro trader.
Second Stage: Finding Trading Opportunities
Technically, the identification of day trading opportunities can be based on historical movements. Try to look for opportunities from pairs whose prices are moving around important levels. This technique can be done by applying indicators that can function as support resistance, such as Fibonacci, trend lines, or even Moving Averages.
Stage Three: Selecting the Best Opportunity
Let's say you have identified any pair that has the potential to form a significant move. So is it wise to take all these opportunities? The answer is no. The best odds are needed for your day trading setup to be executed with high probability.
In fact, it takes a long time for the price to start acting and signal an entry opportunity. Therefore, compare the position of the closeness of the price to the important levels that you observe. When there are 2 pairs that both seem to be moving closer to the 61.8% Fibo level on the 4-hour chart, observe the position carefully, then take opportunities from the pair whose price is closest to the Fibonacci level.
Stage Four: Find the Main Trend Direction
After finding the best day trading opportunities, the next step is to see where the price is moving. The major trend is an important element in determining the trading setup, because it can be a reference for the next strategy.
At first, you can observe price movements on the daily time frame (D1), then shift to the 4-hour chart (H4). Of course, there is no specific benchmark regarding the two types of time frames that you can use, because everything can be determined based on your own preferences. If you are still confused about how to see market trends on several time frames at once, you can learn the tips in this article.
Fifth Stage: Choose Buy or Sell
Following the observations in the previous step, you can then make a decision, whether to take a buy or sell option. According to the rules of trading with multiple time frames, the choice can be made on a smaller time frame, when the price moves against the direction of the trend in the larger time frame. So if the daily chart shows a bearish trend, then you can look for buying opportunities from indications of price increases on the 4-hour chart.
Sixth Stage: Wait for the Right Entry Moment
One of the easiest day trading rules that beginners can follow is: Choose a 4 hour time frame as a reference. At this point, you may be wondering, why is the time frame more prioritized for waiting for the moment of entry?
Still in his description of how to formulate day trading rules in the style of a pro trader, Abe Cofnas emphasized that the H4 time frame presents a comfortable range of price movements to trade. Convenient here means that there is a sufficient pip gap between support and resistance to meet your day trading targets.
Seventh Stage: Execute Trade
Opening an order position should be done after the entry trigger has appeared. Where the signal comes from can depend on the technical setup you use. For example, you use trend line channel and RSI. In that case, you can consider the price bounce from the lower channel and the rise of the RSI from the oversold level as triggers for buy entries.
In Setting the Day Trading Setup, Don't Forget These 2 Important Things
To achieve success at the level of a professional trader is not easy. However, that doesn't mean you can't emulate their methods of trying to walk the same path of success.
Two other things that must be taken into account in your day trading setup are fundamentals and risk management. Increase your vigilance and take extra caution if an entry moment appears near an important forex news release. If you are still having trouble digesting the fundamental effects, it is better to avoid trading and wait for the market to stabilize.
Meanwhile, risk management also needs to be included as part of security measures, because not every trade can end as expected. In managing risk management, you should calculate the target loss according to your tolerance limit.
