Day Trading is conceptually the act of trading (speculating) during the same day. Another word for act of Day Trading that is used by brokers is (Intra-Day Trade) which means not holding a trade position past the closing bell of the stock Market. Which is 4:00 for regular markets and 4:15 for the E-Mini markets.
The least capital needed to hold position, which is called (initial margin) is found with Day Trading. In general to trade Futures and Forex has the least Capital at risk ,when you choose Intra-Day Trading.
When you hold a position for a short period of time, 1 minute, 5 minutes, or 1 hour or two, this style of Intra-Day is called Micro Trading. TradeFoxx promotes this kind of trading that allows for short periods of exposure to risk, this type of trading can be considered income generation trading.
Another name for Micro Trading is also considered (scalping style), which again is taking profits on small price changes. When micro trading you must have extreme control of your risk, because you are willing to take small profits you must also take small loses. We prefer the use of the term of micro trading because you may be in a trade for 1 hour and that conceptually breaks away from Scalping Style. In general you could use the two terms interchangeably.
Risk and Reward is math that must be followed strictly when micro trading. The minimum ratio should be 1 to 1. Meaning if you are willing to risk $100 then you should be willing to win $100. In general you should be willing to win 1.5 to 2.5 to a lose of 1. meaning the risk should be held stead fast $100 but your target should $150 to $250.
This simple concept keeps your losing trades at bay and lets your profits run. There is one twist to the math the fluctuation Risk must be evaluated first before looking at the profit target. Why the fluctuation Risk risk first; simple if the fluctuation Risk risk value is not taken into account your trades will tend to lose more because you did not take into account the natural fluctuations of price to reach your profit target. If you risk is set to low, for a volatile market like the S&P 500 you will always bottom out and lose.
The natural fluctuation (Range of particular price market) is in other words, before price goes your way it will fluctuate up and down a few ticks, this must be taken into account.
Example in a 5 minute bar chart of the S&P 500, price will go up and down sometime a few ticks before moving to the next bar. Every 4 ticks is $50. If I want to Risk $100, I must also add the $50 fluctuation therefor my total risk for that trade is $150, not the original $100.
TradeFoxx promotes trading Renko or Range Charts for entering and exiting a trade position when manual trading with our trade signals. If you are comfortable with minute charts that is fine too.
There are many reasons why you should trade Renko or Range which is beyond the scope of this article. The primary reason is when it comes to risk/reward math is Renko allows you to calculate risk easier.
Price Divergence is when the price of an asset is moving in the opposite direction of a technical indicator, . This is the natural movement of price, it is not linear. In general using Renko Charts the maximum risk should be two boxes in the opposite direction of your profit, therefore this is where you would put your hard stop.
Now that you have set your hard stop, now finding your profit target easy: 1 to 1, 1 to 1.5 1 to 2 or 1 to 2.5 . So if you are willing to lose two boxes then you should be willing to win two boxes, or win 3 and half boxes or 4 boxes. We feel in general more than 4 boxes is pushing it for Micro Trading styles.
Below is an illustration of the concept. how to set Risk to Reward for Micro Trading.