Forex Day Trading Basics

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I. Forex Market Fundamentals Definition: Foreign Exchange market. Global decentralized market for currency trading. Participants: Banks, corporations, governments, hedge funds, retail traders. Market Hours: 24/5 (Sunday 5 PM EST to Friday 5 PM EST). Overlapping sessions offer highest liquidity. Key Sessions: Tokyo: 8 PM - 4 AM EST London: 3 AM - 11 AM EST New York: 8 AM - 5 PM EST Currency Pairs: Majors: EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, NZD/USD, USD/CAD. Highest liquidity. Minors/Crosses: Pairs without USD (e.g., EUR/GBP, GBP/JPY). Exotics: Major currency paired with a developing country currency (e.g., USD/MXN). Lower liquidity, higher volatility. II. Core Terminology Base Currency: First currency in a pair (e.g., EUR in EUR/USD). Quote/Counter Currency: Second currency in a pair (e.g., USD in EUR/USD). Bid Price: Price buyer is willing to pay for the base currency. Ask/Offer Price: Price seller is willing to accept for the base currency. Spread: Difference between Ask and Bid price. Broker's profit. Pip (Percentage in Point): Smallest price increment. Most pairs: $0.0001$ JPY pairs: $0.01$ Lot: Standardized unit of currency traded. Standard Lot: $100,000$ units Mini Lot: $10,000$ units Micro Lot: $1,000$ units Leverage: Borrowed capital to increase trading position size. Example: $1:500$ leverage means $1$ unit of your capital controls $500$ units of currency. High risk, high reward. Margin: Capital required to open and maintain a leveraged position. Margin Call: When account equity falls below required margin. Rollover/Swap: Interest paid or earned for holding positions overnight. III. Order Types Market Order: Execute at best available current price. Limit Order: Buy/Sell at a specified price or better. Buy Limit: Below current market price. Sell Limit: Above current market price. Stop Order: Buy/Sell when price reaches a specified level. Buy Stop: Above current market price (e.g., to buy into a breakout). Sell Stop: Below current market price (e.g., to sell into a breakdown or as a stop-loss). Stop-Loss Order (SL): Closes a losing trade at a specified price to limit losses. Take-Profit Order (TP): Closes a winning trade at a specified price to lock in profits. Trailing Stop: Stop-loss that adjusts automatically as price moves in your favor. IV. Technical Analysis Basics Candlestick Patterns: Bullish: Hammer, Inverse Hammer, Bullish Engulfing, Morning Star, Three White Soldiers. Bearish: Hanging Man, Shooting Star, Bearish Engulfing, Evening Star, Three Black Crows. Doji: Indecision. Support & Resistance: Price levels where buying/selling pressure is expected to reverse or pause. Trendlines: Lines connecting highs (downtrend) or lows (uptrend) to identify trend direction. Moving Averages (MA): Smoothed price data to identify trend and potential S/R. SMA (Simple Moving Average) EMA (Exponential Moving Average) - more weight to recent prices. Crossovers often signal trend changes. Indicators: RSI (Relative Strength Index): Momentum oscillator ($0-100$). Overbought (>$70$), Oversold ( MACD (Moving Average Convergence Divergence): Trend-following momentum indicator. Crossovers signal buy/sell. Bollinger Bands: Volatility indicator. Price tends to stay within bands. Reversals at bands. Timeframes: Day trading typically uses lower timeframes (e.g., $1M, 5M, 15M, 1H$). V. Fundamental Analysis Basics Economic Calendar: Track major economic data releases. Interest Rate Decisions (Central Banks) Inflation Data (CPI, PPI) Employment Reports (NFP - Non-Farm Payrolls) GDP Growth Retail Sales Manufacturing/Services PMIs Impact: High-impact news can cause significant volatility and price swings. Avoid trading during major news without a specific strategy. Geopolitical Events: Wars, elections, political instability can impact currency values. VI. Risk Management for Day Traders Capital Preservation: Primary goal. Risk per Trade: Never risk more than $1-2\%$ of your total trading capital per trade. Example: $1\%$ of $\$10,000$ account is $\$100$ risk. Stop-Loss Placement: Essential for every trade. Place based on technical analysis (e.g., below support, above resistance). Position Sizing: Calculate lot size based on risk per trade, stop-loss distance, and pip value. $\text{Lot Size} = \frac{\text{Risk Amount}}{(\text{Stop Loss in Pips} \times \text{Pip Value})}$ Risk-Reward Ratio (R:R): Aim for $1:2$ or higher (e.g., risking $10$ pips to gain $20$ pips). Do not over-leverage. Avoid Revenge Trading: Stick to your plan after a loss. VII. Trading Psychology & Discipline Trading Plan: Define entry/exit criteria, risk management, and currency pairs. Journaling: Record trades (entry, exit, reasons, emotions) for review and improvement. Emotional Control: Avoid fear of missing out (FOMO) and impulsive decisions. Patience: Wait for high-probability setups. Consistency: Focus on consistent small gains rather than large, infrequent wins. Continuous Learning: Markets evolve; stay updated.