By Vytautas Zilenas
Most traders know what trend trading is. It is a large move in stocks, commodities or currencies that could last for a few weeks or even half a year. This type of move is often called a mega trend. That’s when most money is made in the markets by most investors. However, as you may understand these mega trends do not happen too often, which means that if you miss one, you are out of work for whole year, provided you trade only trends. This situation can be solved quite easily if you took short term trends, which happen on a monthly, weekly and even daily basis.
Daily trends happen quite often and if you learn when to anticipate them, you can become a very successful day trader. There are some things that create various moves on a daily basis and cause a daily trend. Very often this happens due to various fundamental economic news releases. I would advise you to open some websites as dailyfx or fxstreet and copy a weekly economic calendar. Then you will have to mark those economic news events that are of high importance and watch what happens with various forex pairs when those pieces of news are released.
Not all events will cause strong moves. Reaction of market participants to these macroeconomic events mostly depends on the level of unexpectedness that the news creates. If news matches the forecast, there will probably not be a sharp reaction to the news and market will stay in its daily ranges. If the news fails to produce a move you simply do not trade it. What do you do then? You simply watch what happens at important support and resistance levels. They are either broken and this creates a huge daily move or they hold and you can trade a reversal pattern in a given security.
Trading support and resistance as a reversal or a breakout is one of my favorite day trading strategies. Lots of daily trends happen around these levels. In a very range bound market those levels usually hold. However if they don’t you have tremendous opportunity to catch a 100-300 pip move. If you looked at gbp/jpy or usd/jpy pairs today you will be able to see this in action. This is especially true about usd/jpy as it formed a two month channel and stayed in it for the last two months. Even though a disaster struck Japan it was not reflected in Japanese yen pairs. On the contrary, yen strengthened, which resulted in a sharp monthly breakout. So, had you placed some limit orders below the above mentioned pairs you would have made a few hundred pips.
There are more opportunities for you to catch a day trend. If you are really interested in the subject I would invite you to visit my blog and find out more about trend trading. There is also a very good video that I have made which is called day trading strategies. You might watch that as well to understand the basics of day trading. I wish you good luck.