Day Trading the currency market and making a living out of it

The Beginning

Day trading should be viewed as a traditional trading business instead of investing nor gambling. Investing is a way to buy something that grows in value over time. Basically, you are buying into the intrinsic value of your investment. Therefore any money that is earmarked an investment should never be used for currency trading or any investment that does not carry intrinsic value. This seems clear with the concept of investing, however, things appear to be more grey when it comes to gambling/ speculation against trading.
Gambling/ speculation is a game where the outcome appears to be lopsided and favours the house. Example, when you bet on sports, when you win your bet, you get paid 95% of your placed bet. When you lose, you lose 100% of your capital. This is where gambling/ speculation totally differs from investing. You only invest in something that in the event of the worst-case scenario, you will still be able to recover some of your investments back.

No doubt some might argue that even for trading, there is a risk of loss which is 100% of your expected losses. This is definitely a correct viewpoint unless you start to view from another angle. In trading, I can set my loss to be x amount relative to my capital, I would never risk all my capital on single trade as my goal is consistent profits like a normal trading business. The next difference is this, when I buy a currency that I expect to raise, sometimes I can make a 2-4 fold of my return when the market direction goes in my way. Therefore, my loss is a cap at 100% whereas my profits could be anything from 100% onwards. The difference in risk/ reward ratio makes it possible for trading to be treated as a business rather than a gambling venture.
Trading doesn't just reveal your character, it also builds it if you stay in the game long enough. ― Yvan Byeajee, Paradigm Shift
Almost everyone agrees that market direction cannot be predicted but price movement tends to trend for a short period of time. The logic for this predictable pattern lies in the crowd mentality concept. Price move can be due to market panic, news release, rumours, political situation and more. However, this price move direction is always not in a singular direction (else we will all be rich wouldn't we?). That being said, short term trends can be predicted with a trading setup where we contain the risk exposure and systemize profit taking to eliminate human emotion.

Hope I still have your attention by now. To highlight a very important key point. Do not ever treat currency trading as a form of gambling. Never enter a position if you cannot find a suitable opportunity to apply your trading setup. I have seen many times a trader falling into this trap and ended up losing all their capital. They will then start to blame that currency trading don't work out and it is a scam, things like this. To prevent this situation from ever happening to you, make sure that you adopt a trading setup before you enter any position.

The Setup

Trending Market
In my years of trading, I find that the most profitable setup would be a trend reversal. This is the setup where the risk is lowest and reward is potentially the highest. This setup requires the following.

  1. A price trending in either an upward or downward slope. 
  2. A candlestick that goes the opposite direction of the trend. 
  3. A stop-loss setup
  4. A profit taking setup

We first identify the opportunity to trade by studying a price up/down pattern. In the diagram above, you can see that I have highlighted the trading opportunity by using a 15min chart. I will buy when the green candlestick closing price is higher than the previous white candlestick. As per the diagram, I would have longed EUR/USD at the price of 1.2112 (including fees to brokerage). My stoploss will be the lowest price of the initial green candlestick that I use as a reference point to begin trading.  I will then ride this trend until the lowest price of the third last candle of the latest price is a breach. This is where I take my profit. Based upon the example above I would be making around 3-5pips of profits for each trade and risking around 3-5 pips of potential losses. Bearing in mind that 3-5 pips of profit are the least to be expected, certain times, it is possible to make 10-15 pips of profits. Therefore the risk/reward ratio is 1:1 and above.

If you treat trading as a normal commodity trading business whereby you buy low and sell high with volumes, you will see that currency trading makes sense. You risk between 3%-5% of your capital and trades on volume with the hope that you can make as many profits as possible. Assuming that you can make around 100 trades per day with a win ratio of 50%. On average you can be making 7 pips of profit. Therefore your total gross profit before losses accounted would be 350 pips. Assuming your total loss is 250 pips. Thus your net profit would be 150 pips. If you trade on a mini lot position of 0.10 lot per trade, you would be making around $150+ in profit daily with a capital outlay of $1,000.

Sideway Market

As you trade you will come by a situation where the price simply does not move much and there is no price direction movement that confirms a price trend. Therefore rendering it impossible to uncover potential reversal point. Refer to the diagram below for a view of the sideway market. Such a directionless condition makes it easier for you to lose money since you will encounter your cut loss easily and profits are not enough to cover your constant cut loss cost.

You identify sideway market condition when you make 2 successful losses within the 45min of trading using 15min chart. Stop trading and watch out for long shadow tail follow by failing to breach the low or high of the candlestick that shows the long shadow tail. When it comes to sideway market condition, it is extremely important to be disciplined and patient to wait for the right opportunity to strike.