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

Introduction

There are many different ways to generate a return from forex trading, but many aspiring forex traders are naturally drawn to day trading because they can potentially make quick returns with trades that may only last a few hours or a few minutes, and can of course make several of these trades per day.

However after experimenting with various different trading strategies, a lot of traders soon find out for themselves that it is a lot harder than it looks.

So in this article I want to discuss why so many people struggle to make consistent profits trading the short-term charts, such as the 1 and 5-minute charts, for example, and provide you with a few ways you can improve your overall profitability and become a much more successful day trader.

Market Noise

One of the main reasons why day traders struggle to make money is because you get a lot of small random price movements throughout the day, often referred to more commonly as noise.

As a result of this, you will often find that even if you use many different technical indicators to find high probability set-ups, it is still really easy to get stopped out of a position if the price is just drifting aimlessly upwards and downwards with no clear direction.

Small Price Moves

Even when you do get price moves on many of the major currency pairs throughout the day, the resulting price movements are not always that big.

Yes you can sometimes get swings of 50 points or more, but you will often see a lot of price moves that fizzle out after just 5-15 points, which makes them pretty hard to make money from when the spread per trade can be as high as 2-4 points, depending on which pair you trade and which broker you use.

This is particularly true if you trade one of the least volatile currency pairs, such as the EUR/GBP pair, for example.

Economic Data Releases

Another problem that day traders have to contend with is the effect of economic data releases (GDP, unemployment figures, non-farm payrolls, interest rate announcements, etc) because these important announcements take place pretty much every single trading day, and will often move the forex markets.

Therefore it doesn’t really matter if you have spent a long time finding the perfect set-up using your favourite technical indicators because the price could rise or fall dramatically after one of these announcements, and result in some big losses if it goes straight through your stop loss.

How To Make Money From Day Trading

I would always suggest that people lengthen their horizons and use the 4-hour or daily charts to find profitable trading set-ups because you get bigger price moves and don’t have to worry so much about the effect of noise because these random price movements are barely noticeable.

However if you are drawn to short-term trading and are desperate to make money from day trading, here are a few ways you can potentially improve your overall success rate:

Use Long-Term Charts For Guidance

A common mistake people make is that they simply pick a chart, whether it’s the 1, 5 or 10-minute chart, for instance, and make all their decisions based purely on that time frame.

A better approach, however, is to identify the underlying trend and pick out patterns on a longer-term chart, such as the 1-hour chart, and then find your entry and exit points on the short-term chart using this information so that you are always trading in the same direction as the longer-term trend.

Trade Around Key Levels Of Support / Resistance

Another way to improve your profitability is to enter trades around key levels of support and resistance. This could be a round number, a previous high or low, an intraday high or low or a key fibonacci level.

You will find that the price will often reverse around these key levels because so many traders are watching these major support and resistance levels closely and entering positions accordingly, so this will help you find high probability intraday set-ups.

Find Profitable Signal Providers

If you still find that you are unable to consistently make money from day trading, the final solution is to find someone who can. There are plenty of signal providers on Zulutrade and other sites who will allow you to trade their signals automatically in your own account.

Of course it is not always easy to take a hands-off approach to trading, but sometimes this is the best approach if you are always losing money with your own day trading strategies.