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.Any or a combination of these events, orother technical indications, could trigger the trader s perception thatan impending turn could potentially occur.Once the initial perception is triggered, the prudent swingtrader immediately searches for confirmation.For example, if theinitial perception is triggered by a divergence indication, the traderwill check to see if any other patterns, support/resistance levels and/or oscillators are confi rming an impending swing.If there is indeedconfirmation, the experienced swing trader would then considerpossible entries and exits (stop losses and profit targets) to determineif the trade is viable from a risk/reward perspective (as discussed inChapter 6).Given the prevailing trade conditions, if the reward-to-risk ratioappears to be sound, the swing trader would then decide upon thesize and leverage of the trade if these factors have not already beenpredetermined.The final step in the swing trading decision processwould then be to prepare to enter the trade with either a market136 Day Tr adi ng I n and Out , Day I n and Day Outorder or a stop/limit entry order.Simultaneously, the trader wouldalso set stop loss and/or trailing stop parameters, as well as an appro-priate profit target according to the trading plan.For short- to medium-term timeframes, swing trading can poten-tially be a very-high-probability approach to forex.Price swings areextremely prevalent in every fi nancial trading market and on everycharting timeframe.The up and down swings occur naturally dur-ing all market conditions, whether in a trending market or a tradingrange.Moreover, setting risk management controls in the form ofstop losses, as well as determining optimal risk/reward parameters,can be extremely precise and straightforward for the typical swingtrade.Day Trading In and Out, Day In and Day OutThe majority of beginning forex traders try their hand first at daytrading.This is perhaps due to the fact that this style of trading isgenerally the most exciting and fast-paced of the different styles.There are certainly traders who have made a consistently profitableliving through day trading currencies, but it is defi nitely not as easyas it may initially appear to be.Day trading is usually defi ned as the entering and exiting ofpositions within a single trading day.This means that few, if any,trades are held over to the next trading day.It also means that daytraders must necessarily attempt to extract small profi ts from quickmovements on the shortest of charting timeframes, usually anywherefrom the 1-minute chart (where each bar/candlestick is worth oneminute of price movement) to the 5-minute, 10-minute, 15-minute,137 For ei gn Exchange Tr adi ng Met hods and St r at egi es30-minute, and everything in between.Occasionally, timeframes aslong as the 1-hour chart are used for day trading.Trading on the shortest timeframes in this manner works wellonly if the trader possesses the requisite discipline, technique, andmoney management skills to overcome the formidable odds sur-rounding this style of trading.One rather considerable difficultywith short-term day trading is the fact that a necessarily smallnumber of pips is targeted for each trade s profi t objective, makingthe cost of the bid/ask spread a very signifi cant prohibiting factor.For example, if a typical profi t objective is around 20 pips for a daytrade, a 3-pip spread alone accounts for an immediate handicap of15% of the projected profi t.This occurs even before there is actu-ally any price movement on the trade.The day trader therefore has adistinct statistical disadvantage from the outset.In contrast, the 3-pipspread on a targeted 60-pip swing trade or a 300-pip position tradewould represent an immediate handicap of only 5% or 1% of pro-jected profit, respectively.That being said, day trading can still be a viable method ofapproaching forex for experienced and determined traders.The tech-niques employed by day traders vary widely.Often, these techniquesinvolve breakouts of short term support and resistance levels.This-could mean a breakout of a low volatility trading range, or a sharpmove at the opening of an active currency market like London orNew York.Breakouts are discussed in more depth later in the chapter.Other times, day traders will trade purely based upon indi-cator confi rmations.For example, a day trader may have a ruleto open a long trade if the 5-period exponential moving average(EMA) crosses above the 20-period EMA, but only if the 14-period138 Day Tr adi ng I n and Out , Day I n and Day OutRelative Strength Index (RSI) has also crossed above 30 and theslope of the MACD histogram is up.(Note: These trading rules weremeant to serve as an arbitrary example, and were not actually testedas part of a trading strategy.)Because day trading currencies can be extremely fast and intense,there is usually insuffi cient time or opportunity to perform discre-tionary market analysis in a leisurely manner.Therefore, more thanwith any other trading style, day trading often requires concretetrading rules that can be followed without much thinking on thepart of the trader.Clear and simple rules that are meant to be fol-lowed to the letter generally work best for ultra short-term day trad-ers
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