How to Day Trade the Forex Market In 2 Hours or Less a Day (EURUSD)

Here’s how I day trade the forex market, specifically the EURUSD and/or GBPUSD (can use these tactics in other pairs too), in two hours or less. If you’re a day trader this is a must read. Master this and you’ll take your trading to a whole new level (regardless of what strategy you use). The day trading strategies below are covered in the Forex Strategies Guide for Day and Swing Trading eBook…although you have to combine what you learn in multiple chapters.

Below, I discuss the basic strategy I use to day trade forex. That’s well and good; you may opt to use it or not. What’s covered next though–trading beyond the hard right edge– is a bold concept and can turn mediocre trading results into phenomenal results (with practice). Knowing a strategy is great, but even a good strategy may only produce mediocre or poor results if you don’t adjust well to changing market conditions.

Many traders are seeking a strategy, but usually fail to take the time to learn how to implement it properly. We need both pieces–a strategy, and the know-how to implement it effectively.

Day Trading Forex – Basic Guidelines

Becuase this is already an extensive article, links are provided to other articles with more information on given topics.

Most (not all) of my day trades in the forex market are based on these simple concepts (assume an uptrend; same concepts apply to a downtrend):

  • Trade when London and/or the US markets (earlier is better than later) are open. I opt to trade from 8:30 to 10:30 AM EST (15:30 to 17:30 on my charts below). Really anytime while London is open is fine. Two hours a day, sometimes less, and that’s all.
  • Only trade in the direction of the trend.
  • Wait for a pullback. The pullback should be near a (roughly drawn) trendline and/or above a major prior swing low (for some guidance on differentiating small waves from major waves see Impulsive and Corrective Waves ).
  • On the pullback the price must stall–stop falling–for at least 2 bars+ (2 one-minute bars, or more). Buy a breakout above the high price of the sideways bars. This requires patience. If the price stalls and then breaks out in the opposite direction of our trade (no fill on our order), assess if you still want to trade in that direction, and wait for another slow down/stal.
  • Stop Losses and Targets are set at the start of each day (this video shows how ) and may be slightly adjusted during the day based on expanding or contracting volatility. Measure the trending price moves between pullbacks, and then subtract several pips from the smaller ones..that is your target on each trade, and your stop loss is typically about half of that. For example, on April 15 I opted to use a target of 14 pips and a stop loss of 8 pips. On April 14 I opted to use a 10 pip stop loss and a 18 pip target. This changes over time. When I (originally) wrote Forex Day Trading with $1000 or Less. I discuss trading for 6 pips with a 3.5 pip stop loss. A 3.5 pip stop loss likely wouldn’t work in a more volatile environment (like on the chart examples below) and expecting to make 18 pips wasn’t probable when volatility was low. Things change, as traders we must adapt.
  • Exit all position at least two minutes before major news events (related to the pair being traded), and don’t trade until after the news is released. Cancel all pending orders before news and when you are away from your computer. Create a day trading routine to avoid mistakes.

Seems simple right? To day trade the forex market just buy pullbacks to trendlines (approximately), trade in the direction of the trend and make 14 pips or lose 8 pips. It’s not as easy as it sounds. Knowing the strategy isn’t enough. Yes, that is the strategy, but since we can draw trendlines almost anywhere, and if you zoom out (or in) all of a sudden the trend isn’t so clear, maybe following the strategy isn’t quite as easy as it seems…until you learn and practice this one thing.

Day Trade the Forex Market – Beyond the Hard Right Edge

If you want to really learn how to day trade the forex market (or any market), master “trading beyond the hard right edge.” Most people look at what has already happened on their chart, come up with one trade idea and then pray it works out. Since we can’t see what happens next (beyond the hard right edge of our chart), we think of scenarios we want to happen, or that we fear. Most people gravitate toward one or the other. They think about entering a trade and the price flying in their direction for an easy profit and high fives from friends (fantasy), or entering a trade and the price plummeting against them, stopping them out (nightmare). Either of these scenarios are possible (but so are a host of other possibilities) and which one is more prevalent in your mind will bias your trading.

If you are very optimistic, you may miss clues that the market is turning against you. If you are very pessimistic you may avoid a good trade, or jump out of it too Forex trading strategy early (see Mind over Market video for how biases affect trading). What is missing? Your strategy gets you into a trade, with an initial profit target and stop loss. Once you are in the trade though, it is a different world. All sorts of things could happen, very few of which have been considered. What if the price moves in your favor slightly and then starts to move against you? What if the price moves to within 0.1 pips of your target and then reverses, fast (or slow)? What if the price does absolutely nothing after you get in…for 10 minutes? As a day trader is this still the same trade your originally took? You were expecting something to happen, now that it hasn’t, what do you do?

As a day trader, things change very quickly. As Mike Tyson says “Everyone has a plan till they get punched in the mouth.” Unfortunately most day traders don’t even have a plan, and they just let themselves get punched in the mouth. Letting the price hit your stop loss or target is fine. I have designed the strategies I publish to be profitable (you still need to practice when to implement the strategy, deciding which trades to take and which to avoid) with this “hands off” approach. That is never (or rarely) how I actually trade through. Active trade management, when properly applied, is far more profitable and far more consistent than the hands off approach. There is one downside: you need to constantly monitor the market while trading (which is fine for day trading). For a more thorough comparison of the differences between active management and hands-off trading, see Leave Day Trades Alone, Or Manage Them Actively .

How to Day Trade the Forex Market – Active Trade Management

Let’s talk about “trading beyond the hard right edge.” This is an advanced form of active trade management. It is a mind frame, where you look at what has happened and come up with scenarios for exactly what you will do (exit, adjust stop or target, or change nothing) in various scenarios after you enter a trade. This may seem impossible, but there are always only a few things you can do, and few things which could happen, so it actually isn’t that difficult (if you practice).

  • If the trend is strong and the market isn’t giving any warnings signs, I will usually let the price do whatever it wants. My target is likely to get hit, so I leave my stop loss where it is and if I get stopped out I get stopped out. It was worth the risk because everything is moving well.
  • If the trend is very strong, I also decide before the trade if I am allowed to adjust my target or not. If I am allowed to increase my gain, where am I going to move the target to? This will be based on the length of prior price swings (we play odds/tendencies, not what we hope will happen). If I adjust my target, and then price pulls back from it, do I get out or let it make another attempt at the new target? Decide what you will do before the trade is even placed.
    • Usually, I don’t adjust targets. Maybe 1 in 10 trades is worth adjusting the target for. Remember, the target is based on the lengths of prior swings seen that day, so unless there is very good reason that this particular move is likely to be much bigger than the others (a unicorn of sorts) there isn’t usually sufficient reason to adjust a target. If a target is approached, and just barely missed, I usually close the trade immediately. Never let a trade that almost hit your target turn into a loss. This is why you need to plan ahead; if you don’t, it will be very hard to hit that “close” button when profit is evaporating and you are experiencing regret/anger/fear/hope.
  • Say the trend is up, and we just a had a very deep pullback, retracing all or most of the prior up wave. The trend is still technically up, but the deep pullback could be the first wave lower of a downtrend (if the price proceeds to create a lower high after). So thinking ahead, I say to myself “The trend is still up, so I want to get long using my usual entry method, but I also know that selling pressure is present. Therefore I will buy to capture any remaining upside momentum, but if the price shows any weakness once I am in the trade I will exit immediately.”
    • Various situations call for different exits. For example, if things look pretty good, but not ideal, I will allow the price to make three attempts to move in my direction. If it moves in my direction three times but doesn’t hit my target, I look to exit.
    • I may also opt to give it only two chances to go in my favor if the setup is lightly less favorable (trend not as strong). Exit after two attempts if it doesn’t hit the target.
    • If the trend is likely over but you are squeezing the last bit of juice out, or if the trade is at an inflection point which could go either way, only give it one attempt. If it moves in your direction and then falters, bail immediately. It is probably a false breakout .
  • If you take a trade and it immediately moves against you, there isn’t usually much you can do about that. You get stopped out. When we take a trade we need to let it make at least one attempt (or more) in our direction before bailing on it. If you find this happens to you often, you need to work on entries because something is wrong.

To day trade the forex market successfully you need to read and adjust to market conditions (Velocity and Magnitude will help in this). You decide which direction you are going to trade, and before the trade you decide how to manage that trade. Where you entered is no longer relevant; you can’t do anything about your entry price once in a trade. Forget about it. You adapt to what happens after you are in the trade. Like Napoleon on the battle field, you have calculated everything beforehand.

How to Day Trade the Forex Market – Trade Examples

Here is the April 14 EURUSD 1-minute chart, along with comments below. I traded for about an hour and a half.

Forex trading strategy

How to day trade the forex market – EURUSD 1 minute (click to enlarge)

This day (two hour period) was dominated by news at 830 AM EST (1530 on chart). The brown boxes mark “slow downs” in the price which is what we are watching for. I used a 10 pip stop loss and 18 pip profit target on this particular day.

  • The first trade was the first slow down after a very strong move higher. This is one where you just look at the upside momentum and decide you need to get in, on a pullback, as soon as the price starts moving higher again. The long trade occurs as the price crosses above high of the sideways movement (high of the brown box). +18 pips.
  • Trade 2. The price is still rallying, and then has a pullback (just before trade) and then pops higher again. When it pulls back again, it pauses at almost the same low, showing very little selling momentum. This one you want to give a chance to hit the target. +18 pips.
  • Trade 3 and 4. Trend was up. Kept buying. Stopped out on both. Trade 3 never really moved my direction. Trade 4 did move in my direction but then reversed. Cut the losses early. -9 pips and -5.3 pips.
  • Trade 5. We now have a little downtrend, but we can see the price is still respecting the 1.0655 area (horizontal line). Given the overall moves higher, going short isn’t even a consideration yet. Buy again when the price stalls at support and then moves higher. The price just about reached the target and then pulled away from it. Closed immediately. +14.9 pips.
  • Trade 6. Didn’t actually take this one. But it was similar to trade 5…but with the added benefit that just before this trade the price made a short-term higher high (at 16:58 relative to the minor high at 16:42). That would have been another profitable one.

In less than two hours of trading we had 5 trades: 3 winners and 2 losers, for a total of 36.6 pips. Assume you have a $2000 account and risk 1% (can lose up to $20 on each trade). With a 10 pip stop loss you can trade 2 mini lots to stay within this risk tolerance. Therefore, your daily profit is 36.6 pips x $1 (how much a mini lot is worth per pip) x 2 (how many mini lots you are trading) = $73.2, or 3.66%. With a $10,000 account you make $366 for two hours work. Once consistent, you can increase risk to 1.5% or 2% per trade(no need to go higher than that), pushing your revenue to $732 on a $10,000 account. That’s based on one strategy…the forex strategies guide has many more.

Here is the April 15 EURUSD 1-minute chart (I learned a new trick in MT4–if you drag an order from your account history onto the chart it will put the trade levels for that trade on your chart).

Forex trading strategy

How to day trade the forex market – EURUSD (click to enlarge)

On April 14 we had lots of “clean movement”. On April 15 we had a Euro conference begin right around the time I started trading (1530 on chart) and that created some price whipsaws. Best to avoid…but as we can see I did take one trade in there…

  • Based on swings prior to the first trade I opted for a 14 pip target and 8 pip stop loss.
  • We can see the price moving mostly sideways but in a very jagged way. Just before the first trade the price tried to move lower, but failed. It rallied paused, and I bought when the price broke above the brown box (I manually draw these…for you…I don’t’ draw them while I am actually trading). This trade was almost 10 pips onside, and then I took a full loss on it. I make mistakes too. Given the choppy nature we were seeing, I shoudl have bailed much earlier. The reversal was very fast, so maybe it is a flat trade, but at worst should have only been only a -5 or -6 pip loss. This is a slightly different strategy than the one discussed above–I wanted in because the price had just had a false breakout. and not necessarily because of the overall trend (like all other trades).
  • Trade 2. Sharp move in our direction, little pullback to near old resistance (range top), pause, enter as price starts moving higher. Classic! +14 pips.
  • Trade 3. Pretty much the same. The price is now moving a little sideways, but the price held above the prior swing low, and all the elements are there so I am triggered in. +13.6 pips (entry price had slippage slightly reducing profit on trade–target stays at originally planned level despite the slippage).
  • x: I marked a box and put an x under it. This slow down/stall is way too close to a recent high. This trend has been running up and a deeper pullback is likely.
  • NFs: tried to get long twice, but to no avail. Price kept dropping. This why we wait for the price to move back in our direction. It never broke above the brown box, so no trade. By the second NF you can see my comments…I am basically saying I will only give this trade one chance to go (if it fills, which it didn’t) because by this time the price had retraced the whole last leg of the rally, indicating weakness.
  • The price then lulls a little and it is almost 10:30 AM EST (1730 on chart) so that was it for the day.

Overall, in less than an hour of trading we had 3 trades: 2 winners and 1 losers, for a total of 19.6 pips (a bit higher if I don’t make that mistake on the first). Assume you have a $2000 account and risk 1% ($20 on each trade). With an 8 pip stop loss you can trade 2.5 mini lots. Therefore, your daily profit is 19.6 pips x $1 (how much a mini lot is worth per pip) x 2.5 (how many mini lots you are trading) = $49, or 2.45%. With a $10,000 account you make $245 for an hour of work….you don’t even need to give up your day job. Once consistent, you can increase risk to 1.5% or 2%, pushing your revenue up to about $490 on a $10,000 account (for this particular day).

To learn more about how to day trade forex, including basics to get you started (order types, currency pairs to focus on, defining trends…), 20+ strategies and a plan to get you practicing and successful, check out the Forex Strategies Guide for Day and Swing Traders 2.0 by me, Cory Mitchell, CMT.

Additional Notes on Day Trading the Forex Market

I recommend using a daily stop loss and a loss from top. If you lose 3% (three trades risking 1%), stop trading. Read Day Traders: How and Why to Use a Daily Stop Loss for more details. Once you master this method, this should be a rare event. We call it “blowing up” (when you lose three trades right off the bat and have to stop trading). You should only blow up once ever month or two.

On days were volatility is lower, your stop loss and target will be a bit smaller. But by continuing to risk 1% (or 1.5% or 2%), your position size will increase. If you’re well practiced you still should be able to make a good daily income, no matter if volatility contracts or expands. Be aware of super tiny stop losses though, and huge positions sizes…that can spell disaster (see Reducing the Risk of Catastrophic Trading Losses ).

For day trading forex, use an ECN account with near zero spreads. and pay the small commission if you plan on day trading forex regularly. When volatility shrinks the tight spread becomes more important. When it is quieter, the spread becomes much more of an obstacle, because if it is quieter our targets are going to be smaller. Our payoff relative to the spread decreases. On really quiet days, or days where you don’t see valid trade setups, you have to be content not to trade. Save your capital for better opportunities.

My order is poised in anticipation of a trade. Assume I want to buy. I set up a buy stop order (don’t confuse buy stop with a stop loss order–the stop loss order is attached to our buy stop order) with a 8 pip stop loss and 14 pip target (or whatever it is on that particular day). I then place it way above the current price (so it doesn’t accidentally get filled before I want it to). When a slow down forms, I drag the order–with stop loss and target attached–down to the entry price I want (just above brown boxes on charts). That way, my order will trigger as soon as the price moves out of the brown box. If you use market orders and are even a second delayed the price could be well away from the entry point we want (not good!). You can set this up using an MT4 plugin, discussed here. If you trade with a broker that supports NinjaTrader–a great trading platform–that will also work well (I think only FXCM offers NinjaTrader).

I learned this adaptive trading style from Nikolai, Manny and Marcello over at the Day Trading Academy …great Futures (S&P 500 E-minis) day traders. If you are interested in futures trading, or want to read a bit more on this topic, check out Developing and Trading the Best Day Trading Strategy .

Looking at the charts this may seem easy. It isn’t. It will take 6 months to a year of practicing two hours a day (including a few hours on weekends going through charts, reviewing, self-assessing and working on problem areas) before you will likely be able to trade like this consistently (see 5 Step Plan for Forex Trading Success ). What you are basically doing is planning your trades before the market even moves to your entry location. You have an idea of where you want your trades to take place before the market even approaches that area. If the market doesn’t go there, you don’t trade. If the market does something unexpected, you adapt and hatch a new plan. You are always thinking ahead, strategizing exactly how will get in and out of trades (based on all the price movement evidence for, or against, your trade)…before the trade is even placed. This is mentally taxing. which is one reason I only trade two hours a day (when I day trade). It is a skill and it takes a lot of work to develop…and maintain (if you don’t trade for a while, you’ll be “rusty”).

Don’t let a losing trade or two throw you off. Focus on what is happening, plan and then jump on opportunities. Keeping the mind busy with important trading tasks will keep your sabotaging emotions at bay.

Some days you may have 8 or 9 trades. Other days only one or two. Some days your stop loss will be 20 pips and your target 35…other days your stop will be 3.5 pips and your target 6. Adapt..and have fun! That s how to day trade the forex market, the EURUSD, or any forex pair.

To learn more about how to day trade forex, including basics to get you started (order types, currency pairs to focus on, defining trends…), 20+ strategies and a plan to get you practicing and successful, check out the Forex Strategies Guide for Day and Swing Traders 2.0 by me, Cory Mitchell, CMT.

I can’t cover everything in one article. Post your questions though, as that lets me know what to focus on in future articles.

Cory Mitchell, CMT says:

For day trading I stick to the EURUSD most of the time. I only ever day trade one pair at a time (one pair per day), and typically trade the same pair all week/month. I do occasionally switch to the GBPUSD because it has a bit more volatility, but the EURUSD is the standard.

Swing trading is different…for that I monitor loads of pairs because I can easily flip through the charts each night. Most won’t have trades each night, so it only takes about 20 minutes a night to flip through them all, spot trades, and place orders. I swing trade (when trades come up) combinations of the AUD,CAD,USD,EUR,GBP,JPY,NZD as well as the some of the smaller currencies…total of about 46 pairs.

But for day trading…just the EURUSD, and occasionally GBPUSD.

I have the following questions about the two trading examples in this article.
according to your ebook a trend has to be proven when trend trading. I.e. the price development shall show at least one higher high and one higher low in case of an uptrend.
However the first trade in the trading example of 14 april 2015) doesn’t meet this condition and with the second trade in the second trading example of 15 april 2015 this is questionable. I.e. the trades are made on the assumption that there is an uptrend and not on a proven uptrend.
Isn’t this in contradiction with the ebook ?
Kind regards,
At de Jong

Cory Mitchell, CMT says:

It’s not a contradiction, but the trades you point out could be considered a bit more advanced. The main reason for these trades comes from the Velocity and Magnitude chapter. For both the trades you mentioned we have huge velocity and magnitude to the upside. Those very strong moves shift the trend to up…because they create a significantly higher high (can no longer be a downtrend). As you point, we should be waiting for a higher low to confirm the trend. But that is exactly what I did. I waited for a pullback, and then I waited for the pullback to stall out. I then took a trade as the price started to rise again. By waiting for those small confirmations, I had both the higher high and higher low I was looking for.

But these are more advanced trades, because you can’t see the pattern of higher-high and higher-low before you take the trade. Instead, you only have a higher-high (very strong ones) and then in real-time need to be able to watch the pullback and tell yourself you will get in if it shows signs of making a higher-low (stalls out above where the big move higher began).

Usually I DO prefer trading in a well established trend. YET, when you have a massive move either up or down, that has very strong magnitude (velocity is a nice addition as well), that typically means the trend has reversed. Or it at least provides me with enough confirmation that I am willing to take a trade on the pullback that follows the big move (assuming it stalls out and then starts to move back in the direction of the big move).

Hopefully that helps clear it up. No chapter should be read in isolation. All the chapters have been included for a reason. There are elements from each that will help you make better trading decisions. Following a big move is one of those times. You may not have a typical trend structure, but the price action (a very strong move) tells us the trend has likely reversed, and by waiting for a pullback that stalls out before that big move began, we are in fact trading a trend…it is just the beginning of it.

Hi Cory
I’m a beginner and I have difficulty in understanding how you get to trading 2.5 mini lots in your example:
“Assume you have a $2000 account and risk 1% ($20 on each trade). With an 8 pip stop loss you can trade 2.5 mini lots.”

Trading 2.5 mini lots is surely going to require much more than $20, even if you have a massive leverage. Can you explain the reasoning/calculations here please.
Otherwise I’m enjoying your articles immensely – thank you

Cory Mitchell, CMT says:

Hi JP. You do need more than $20. You need at least $2000 (ie. “a $2000 account” per above), plus leverage.

Buying 2.5 mini lots costs $25,000, so you need at least 15:1 leverage (giving you $30,000 in usable capital (your 2000 x 15 leverage)). BUT, you can still keep your risk to only $20, if you choose.

If you buy a mini lot, each pip the price (EURUSD) moves will make or lose you $1. If you buy 2.5 mini lots, you will make or lose $2.5 for each pip of movement. If you buy at 1.0320 and place a stop loss at 1.0312 (8 pips difference) you are risking 8 pips, and therefore you will only lose about $20 (2.5 mini lots x 8 pips).

There is a big difference between the transaction value (25,000 in this case, for 2.5 mini lots) and how much you put at risk ($20 in this case, with only risking 1% of the 2000 in the account). How much you put at risk is up to you, and is based on your position size and how far you place a stop loss from your entry price.

Make more sense?

Thanks Cory, your explanation really makes great sense.

One small matter though:
My math on the cost of a mini-lot without leverage (for USD counter currency pairs) brings me to $10000 and not $1000. This might seem elementary but obviously its critical to get it right
Can you explain how you got to the $2500 for a mini lot please? I must be missing something somewhere.

Cory Mitchell, CMT says:

I need to proof-read my comments more carefully. Sorry for the confusion. My fault. I missed a zero and it threw off all the numbers in my prior comment. I have revised my prior comment with the correct numbers. Leverage is required, as you point out.

I will need to look through the article to see if I linked to the Position Size article anywhere. If not, this article discusses Position Size in more detail:

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