Constructing A Profitable Forex Day Trading Method

Many people simply do not have the patience to trade 4 hour or daily charts, for instance. Therefore they are immediately drawn to the much more exciting intraday time frames such as the 1 minute and 5 minute charts. Unfortunately this is one of the hardest ways of making money from the forex markets.

Of course there are some traders who make some decent profits scalping the markets throughout the day but sadly most people will end up losing their capital in the long run. One of the reasons why this is the case is because the spreads can really eat into your profits when you are trading the really short time frames.

For instance you could have an ideal set-up on the 1 minute chart of the GBP/USD pair but even if you make a winning prediction the trend may only last 6 or 7 points, for example before reversing again. Therefore even if you call the trade correctly, with a spread of 3 or 4 points it's hardly worth the effort.

Another problem you face is market noise. This term basically refers to the random nature of the currency markets. Although you do get strong trends at times, you will often find that on the shorter 1 minute and 5 minute charts, there are times when the price is just drifting aimlessly without a real sense of direction. Therefore it is pretty much impossible to generate profits from such market conditions.

This is why I always believe that if you do want to trade the intraday charts, you should concentrate on either the 15 minute, 30 minute, or 1 hour time frame. That way not only will you eliminate most of this noise, but you will also be able to trade much stronger trends, which in turn will result in greater points gains.

These time frames are much easier to trade but you still need to follow a few golden rules in order to generate profits. Firstly you need to employ tight stop losses at all times and secondly you need to create a trading system that allows your winning trades to run for as long as possible to ensure that they always exceed your losing ones.

The easiest way to do this is to create some kind of trend-following system. You can either look for the emergence of new trends or wait until a trend is under way and then wait for a pull-back so you can enter a trade if the original trend prevails.

There are lots of ways you can trade the shorter time frames but I personally believe the trend-following systems are the easiest and most profitable. Furthermore don't be tempted into using too many technical indicators because they will often give conflicting signals.

You will often find that a basic trend-following system which uses tight stop losses and lets the winning trades run for as long as possible will outperform most other day trading systems.