Best Strategies For Part-Time Forex Traders
The majority of people trade forex markets part-time, usually as a side hustle to their main occupation. Because the forex markets trade almost 24/7, this is a perfectly achievable goal. In fact, trading part-time can be an advantage, because it calls for a more disciplined approach. Here are some tips on how to put together a strong part time trading strategy.
Know the best trading times
If you are working a 9-5, then you are probably going to be trading either before or after work, or during your lunch hour. The markets close at 5pm on Friday, and re-open at 4pm on Sunday. However, the weekends should also be used to refine your trading strategies, and carry out long term market analysis.
The major forex centres in the world are London, New York, Tokyo, and Sydney. Because these cities are in different time zones, and there is no centralised forex exchange, it is possible to find good trading conditions at most times of the day. However, the geographical trading zones are not open continuously, but overlap each other.
If you are based in the UK, the Sydney session trades from 12 midnight until 6am, the Tokyo session trades from 12 midnight until 9am. The London markets open at 8am and close at 4pm, and the New York markets open at 12 noon and close at 9pm. These hours might vary slightly, according to the seasonal daylight-saving hour adjustments.
So, although the markets are available to trade 24/7, they are at their most active when there is a crossover session between two zones, such as 8am to 9am, when the London markets open, and the Japanese session is in its final hour. The first hour of opening for each zone is also usually one of the most active times.
Because the UD dollar (USD) is the most popular currency pair, the New York session tends to experience the highest volumes of trading on an average day. Therefore, the lunch break hours, from 12-2pm, and the period from 5pm- 9pm, when most UK workers will have finished their day job, are excellent times to trade.
Pick the currency pairs to suit your trading times
At all times, novice forex traders are advised to stick with the major currency pairs, which always include the USD. The other major currency pairs include the Euro (EUR), the Swiss Franc (CHF), the Australian dollar (AUD), the British pound (GBP), the New Zealand dollar (NZD) and the Canadian dollar (CAD).
If you are trading morning hours, you could pick the Japanese Yen (JPY) as your other major pair, because there is a crossover period with the Tokyo market between 8am and 9am. The European currencies are also good options for this time of day. Other good crosses for this time are the AUD/JPY, and the USD/JPY.
The major currency pairs have the most liquidity on the market, meaning that they almost always have readily available buyers and sellers. This reduces the risk of making losses, and maximises your opportunities for taking a profitable trade.
If you are trading evening hours when both the US and European sessions are open, then USD/EUR or USD/GBP pairs will be at the highest levels of trading volumes. Of course, time isn’t the only factor that influences the markets, but if you are a part time trader, it is one of the most important factors in your trading strategy.
Using price action strategies
If you have good technical skills, and are good at analysing charts and data, you may be able to incorporate a price action strategy into your trading. This involves dipping in and out of trading for brief frequent periods throughout the day, rather than a more prolonged session at the beginning or end of the day.
Obviously, not all full-time jobs will lend themselves to this approach, but if you have flexible working hours, then you might be able to find a way to make it work. The key is to follow your chosen technical chart closely, and make a series of trades based on the uptrend or downtrend of the price action indicators.
Often, a trade will be held for just a few minutes or even seconds, and the gains from each individual trade are usually small. However, because the process can be repeated quickly, the profits can build up in a short time frame.
This technique is sometimes referred to as scalping. It does have the potential to bring very lucrative rewards, but it is also a riskier strategy than a longer-term approach. If you are interested in short term trading, you must first be very clear about where your risk tolerance boundaries lie.
Set out from the beginning how much money you are willing to lose on each trade, and don’t be tempted to go over this, or take more leverage. You will also need to be able to control your emotions and take a tough pragmatic approach. This is important for any type of trading, but especially so when you are making a series of quick decisions under pressure.
Read up on trading psychology so that you are mentally prepared for the rough and tumble of trading. Even the most level headed of us are prone to feeling the primal human emotions of fear and greed at times, and they are amplified when we are trading.
This is because it is a natural human tendency to want to reap the biggest rewards for ourselves, and to fear making a loss. If these emotions get the better of us when we are trading, we could use too much leverage, hold on to winning positions for too long. On the other hand, we could become over-cautious, closing down trades prematurely.
The best way to avoid letting emotions interfere with your trading is to have clear exit and entry strategies, a stop-loss policy, and a good understanding of what influences the markets. Above all, you should have the discipline to stick to your strategy through thick and thin, and avoid chasing numerical goals in your trading.
Using long term strategies
Many part time traders prefer to take a more long-term approach. Forex trading is rarely a get-rich quick scheme, and it often works better when a trader pursues a steady disciplined approach, learning from mistakes and making small gains, at least for the first few months or even years.
Making longer term trades requires a good understanding of what moves the market, by analysing graphs and charts to identify trends and patterns, and also by following economic data releases relevant to your currency pairs. For example, the unemployment rates, interest rates, and inflation rates all have a strong pull on the movement of the markets.
Use an economic calendar to help you keep a track on the data releases on a daily basis. Also be aware of wider geopolitical events, such as election announcements, natural disasters, wars, pandemics, and so on, and these impact currency prices. Learn how to interpret them for each country or economy that you trade with.
Swing traders hold open positions for a few days or even weeks at a time, and then make their move off the back of market imbalances. However, be cautious of rushing with the crowd on the back of a major announcement. This is because the markets can be highly volatile at times like these, and they do not always move in predictable ways.
Beware of the whipsaw effect, when a sharp upward or downward trend is suddenly reversed, catching those who have rushed into making a move off guard. It is a much sounder strategy to let the markets settle down first, before making any decisions.
Swing trading requires good technical analysis and a sharp eye on the economic calendar. It can work very well for part time traders, because any fluctuations in price tend to have settled down by the end of the day, meaning that the opportunity for a fair gain is there.
If you don’t think that you have the time or commitment for short term or swing trading, then long term position trading may suit you best. This is where a position is held over months or even years, and relies on long term analysis of the currency fluctuations between your chosen pair.
Keep a trading journal
Good traders keep a record of all their movements, to allow them to keep track of their trades, but also to help identify which strategies and currency pairs are working best for them. This is especially important if you are a part time trader, as it will give you an insight into your performance in more detail and clarity than you would otherwise have.
If you have been trading morning hours without making much progress for example, you could change your trading hours to the evening to see if you can track any improvement.
Part time forex trading is accessible to everyone, with instant forex funding available at a low barrier to entry. The main factors to be aware of is how the time of day affects your currency pairs, and how your trading strategy can be shaped by your limited time frame.