Did you know that:
You can make fast profit from the market within one or two hours of trading?
No need to stay the whole of the day and wait the trend to reverse its direction!
If you have a scalper trading profile, or you want to be a scalper then this article is for
you.
The scalping strategy is especially for traders that want to snatch a quick profit from
the market.
What is scalping in Forex?
The scalping is an aggressive strategy, its goal is to achieve a high
frequency trading on small time frames.
A position's opening duration can range from several seconds to several minutes.
Scalping means in Forex trading to target small and quick profits by opening several
positions per a day.
Scalping the market is risky and you must pay attention to multiple variations.
As your target profit range from 10 pips to 30 pips per a position you need, for
example to enter the low spread pair of currency to protect yourself from losing.
Scalping the market is good for traders that have small accounts without enough
capital to invest in the long run.
The objective of day traders is to make around 20 to 100 pips per a single trade by
entering the medium time frames (5 minutes - 30 minutes - Daily...)
As a consequence day traders are not influenced much by spread Vicissitudes
Paying attention to the spread's price is inevitable for you (if you are a scalper), as
spreads can affect your profits.
Scalpers use technical analysis to trade currencies by entering the market according
to several indicators combination (Moving averages - bollinger bands - Momentum Volume...)
They use also the fundamental analysis to trade the Forex market by targeting news
release times.
For me fundamental analysis is a waste of time for scalpers, but they just need to use
it to monitor their trades.
Because if market makers know the influence of an important news... Simply they will
raise the spread price, sometimes it can be more than 150 pips!
You must avoid scalping the market using the fundamental analysis!
Is Forex scalping for you?
You are the only person you can answer this question.
You must develop your own trading style according to your goals.
Deciding what style you will be is very important for you as this could help you to:
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Define the specific pairs and crosses you want to trade.
Choose between different trading opportunities.
Limit losses and enhance profits.
But they still some reasons that could obligate you to choose a scalper trading profile.
Scalping is for you if:
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You have not enough time to track currency charts every time.
By the nature you have a nervous trading psychology so you need to make
quick profits.
You want to enter and exit the market quickly.
You are a new trader and you do not have enough experience to trade the long
term.
You are afraid to take significant Forex trading risks.
You have a small capital to invest.
You like to trade small time frames (one or five minute chart).
You can concentrate during trading sessions.
You have the speed to react easily to different market contingencies.
Advantages and Disadvantages of Forex scalping:
There are multiple pros and cons of scalping strategies as I said above, you need to
choose your strategy to match your trading style.
Advantages:
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Fast profit from the market.
Small losses (Scalpers risk no more than three to ten pips).
Simple trading strategies, you do not need a lot of technical skills.
Disadvantages:
The first disadvantage of scalping is that you need to choose a credible broker to trade
using the scalping strategy.
Because many brokers dislike scalpers so they react by enhancing their commission
(Spread).
To fix this problem, before you choose a broker, ask if they allow scalping.
... And search for trader's testimonials with scalping using the broker you want to
trade with.
What currencies to trade using scalping?
There are multiple currency pairs in the market, what you need is to trade the most
popular currencies to avoid liquidity problems.
You must choose currencies that match your Forex trading style.
For you as a scalper, you should trade USD major currencies.
What I mean is:
That you must trade USD currency pairs.
Here is a list of the most liquid and popular currency pairs from the largest liquid
currencies to the lowest:
1. EUR / USD
2. USD / JPY
3. GBP / USD
4. AUD / USD
5. USD / CHF
The EUR / USD pair is the most popular currency traded as it offers a high liquidity
for all traders profiles.
According to the richest.com USD currency takes up to 84,9% of all Forex
transactions.
EUR takes up to 39,1%
You like to get a good profit from the market using scalping strategies?
Trade EUR / USD and avoid pairs not including the USD until you trade using a real
Forex account for several months.
Avoid the cross rates like:
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EUR / GBP
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AUD / JPY
GBP / CHF
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Risk management for scalpers
Even if you lose 50% of your trades you still can make money from the Forex market.
It's the magic power of risk management.
There are 10 rules to manage your risk that I have published previously in my guide
(You can check it here)
Here is a summarize of what I'm talking about:
1. Avoid trading large lots.
2. Do not take big risks.
3. Do not enter a trade if you still in doubt about the results.
4. Do not trade a lot, over trading could hurt you, one-three positions per a day
are enough.
5. Always place a stop loss, trading without it is a 100% losing attempt.
6. Risk a specific percentage of your account value (1-2% are enough).
7. Tighten your stops to limit risk.
8. You should know that it isn't important to have a high win/loss ratio what
matters is how much you make when you are right and how much you make
when you are wrong.
9. Close the position when your trading system displays that you must close, it
don't be greedy.
10. Do not trade multiple currency pairs that share a currency in common (like
buying EUR/USD and selling GBP/EUR, you have just bought the euro
currency two times).
For more insights about Forex risk management visit the link above.
Concentration and emotions in scalping
The most traders that need concentration more than other traders (guerrillas - Day
traders - position traders...) are scalpers.
Because the profit per a single trade is very low (5 to 30 as maximum) scalpers need
as a consequence to open several positions to make a significant profit from the
market.
The simple way to get much more focus during your trading is by using risk
management rules, this will help you to enhance your concentration by controlling
losses.
Greed and fear have also a huge impact on your trading results.
If you want to be a real Forex scalper then you need to try every time to use logic and
your trading system.
I have published an article about 3 steps to beat emotions this could help you to clear
your mind from the famous enemies of all of the traders (Greed and Fear).
The best "times" and "time frames" to trade Forex as a scalper
If you enter at the Forex market time zone converter website you will see the
following image:
The best times to trade is when two Forex markets overlap.
This gives you the volatility you need as you are a scalper (the shorter term you decide
to trade, the more volatile markets you should seek).
Like you see in the image instead of trading the pair currency of EUR / USD.
It will be more profitable to trade AUD [Sydney] / JPY [Tokyo] (Australian
dollar/Japanese Yen).
Otherwise, the best time frame to use the Forex scalping strategies is the 5 minutes
time frame (the higher time frame you trade the more your strategy will make
significant results).
How to choose the broker for Forex scalping?
There are dozens of different brokers.
Some are favored for beginner traders, others are favored for intermediate traders,
and some are reserved for expert traders.
That's why choosing the right broker is essential to start properly in the world of
Forex trading.
There are two types of brokers:
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The NO dealing desk: that is an intermediate between the trader (you) and
banks that want to invest your money in the Forex market. I
recommend these brokers for technical analysis users.
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The dealing desk who works directly with the market, more suited to traders
that use fundamental analysis.
As I said above, there are a lot of brokers around the world of Forex trading.
Each broker has its own technical aptitude, and requirements that a trader must have
to trade with that broker.
Those requirements are not significant for long run traders (Position traders - Day
traders...).
But for scalpers these conditions are meaningful... As they are the distance between
gains and losses.
The first thing as a scalper that you should verify to choose a broker is:
How much spread you are going to pay?
For day or position traders, this is not important because they open one or two
positions per a day.
The spread cost for long run trading style still neglected.
It's different for a scalper, you need to choose a broker that provides low spreads!
Because you still need to open tons of positions in a short time to make a good reward
from the market.
The second thing a scalper should search about to choose a broker is the scalping
policy of that broker.
Respected brokers with large client bases have their own scalping policy where they
describe scalpers action limits...
Some brokers by nature, they do not allow traders to use scalping.
The third issue scalpers must pay attention to it is the tools provided by the broker.
You should choose a broker that provides all of the tools you need to scalp the market
(it depends on your scalping strategy).
For example, if you are a scalper, you need a broker that affords a platform that do
not tire your eyes as you need to focus your eyes for a long time on the charts.
You need also a platform that provides multiple time frames (1 minute - 5 minute - 10
minute...)
The last issue to look about if you are a scalper is to verify the execution time the
broker need to execute your trading decisions.
What I mean is simply:
Look for brokers that execute your decisions instantly without slippage.
Simple & Best Forex Scalping Strategies
Here we came to the most essential part of the topic.
I find everybody asking this question:
How to scalp Forex?
It's simple and easy to scalp the market, you need just some scalping techniques.
We will discuss some of them now!
But remember that you need to develop your own system & style.
The Forex scalping system that matches your psychology requirements.
Here is what we are going to use to scalp the market:
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Bollinger bands indicator.
Moving averages.
Momentum indicator.
Swing highs and lows.
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Fibonacci levels.
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5 minute time frame.
4 Hours time frame to confirm our decision.
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[The setting setups will not take more than 10 minutes]
Step #1
Set the bollinger bands indicator on your platform, if you use the meta trader
platform here is how to set it:
[If you have not found the navigator on your platform just set Ctrl+N on your
keyboard]
PS: I just try to make my article newbies friendly Skip these steps if you are an
advanced trader.
It looks something like that:
Step #2
Now...
Set the moving averages we need to use.
We are going to use:
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200 Moving averages that will give us the major direction of the trend.
50 Moving averages that will help us to confirm the 200 Moving averages.
3 and 7 moving averages that will help us to enter and exit the market.
If you do not know how to set the Moving averages indicator, here is how to set it:
1. Select "trend" from the navigator section.
2. Select the Moving average.
3. Set the periods (200 - 50 - 3 - 7) we need.
4. Choose the colors.
5. Click "OK"
It looks something like this:
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Yellow line: 7 Moving averages.
Blue line: 3 Moving averages.
Pink line: 200 Moving averages.
Green line: 50 Moving averages.
Step #3
Now set the momentum indicator, this indicator will going to help you to define
overbought and oversold points.
From your navigator select the momentum indicator:
It looks like the following image:
Step #4
Now You should find swings.
This step is very easy to do as the Zigzag indicator will do that instead of you.
From your navigator select the zigzag indicator:
Swings will be clear after you set the indicator in your platform.
Swings will help you to set the Fibonacci retracement easily.
Step #5
This step is very easy to do.
Just you need to set the Fibonacci retracement on your platform.
We are going to use the Fibonacci levels to define our target profit.
Here is how to do it in the meta trader platform:
Then click and drag from the lowest price
to the highest one (use the zigzag indicator to define them easily) if you are in a down
trend.
Or click and drag from the highest price to the lowest one (use the zigzag indicator to
define them easily) if you are in an up trend.
Just like you see in the image below:
Step #6
Because we want to scalp the market so you need to switch to the 5 or 15 minutes time
frame.
PS: I do not recommend to scalp using 1 minute time frame.
Because if the market is very volatile it can destroy your dreams easily.
Also the 1 minute time frame do not give you enough time to do the technical analysis
like it should be done.
Step #7
Now you should look at the 4 hours time frame and write on a piece of paper the
trend line you have just discovered.
This will going to help you to not enter against the major trend line, to make 80% of
your decisions guaranteed.
For me, I have defined the major trend of the EUR / USD.
And I find that the trend has changed its direction from an uptrend to a down trend.
As you look at the image above the trend line is tested for three times, the price fail
three times to break the trend...
This trend is very strong.
Now the trend is broken by the price, we expect a huge fall of the price.
In this case you should search for short positions.
It will be an unforgiving mistake to enter against the new trend (Downward trend).
Write it on a piece of paper:
I have to search for short positions!
Step #8
Now
Come back to the 5 minutes time frame.
We are going to search for short positions.
Here are the rules:
First thing before I show you how to enter, monitor and exit the market:
Do not forget the risk management rules, do not risk more than 1-2% of your account
value.
Sell entry conditions: (Look at the image below)
[Make sure you enter the trade in the direction of the major trend]
Here are the 5 conditions to sell:
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The 50 Moving average is down [Green line].
The 200 Moving average is above the price [Pink line].
The 3 Moving average[Blue line] crosses the 7 Moving average [Yellow line]
from the top to bottom.
The momentum is in the overbought area [above the red line].
A bearish candle is closed below the first, second or the third deviation of the
bollinger band indicator [the three Medium Sea Green lines].
Buy entry conditions:
In the case you find the major trend is an uptrend...
Here are the 5 conditions to buy:
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The 50 Moving average is up [Green line].
The 200 Moving average is below the price [Pink line].
The 3 Moving average [Blue line] crosses the 7 Moving average [Yellow line]
from the bottom to the top.
The momentum is in the oversold area [under the red line].
A bullish candle is closed above the first, second or the third deviation of the
bollinger band indicator [the three Medium Sea Green lines].
Monitoring the trade:
Now:
You have the tools to enter the market.
You just need to know how to monitor your position.
Monitoring a trade involves two steps:
1. Make sure to check if there is any unexpected news that might necessitate
bailing out of your trade.
You can do that simply by checking websites that provide currency news...
Here is how I do it:
I use Forex factory Calendar that allows me to know if there is any unexpected news
that could influence my trades.
Here are 5 steps to get the website ready to use:
Step #1: Enter to the Forex factory website: www.forexfactory.com
Step #2: Select "Calendar" in the top.
Step #3: check the time if it is correct or not.
If it is not correct just click on the time icon:
Now adjust the time by selecting "Match automatically" then click "save settings:
Step #4: Check the filter options.
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Select the currencies you want to know news about.
Check all the "expected impact" boxes.
Check all the "event types" boxes.
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White color: Non-economic news like bank holidays (the Forex market may
stop working temporarily because of the holidays)
Yellow color: Low impact news.
Orange color: Medium impact on the price movement.
Red color: the news may have a huge impact on the price movements.
Step #5: Select the period of time you want to know news about.
I recommend to select the day you are in.
Now...
Let's suppose that you want to know the news that could impact the Canadian dollar
currency (CAD).
Click the detail icon to know more about the news:
It will look something like that:
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Source: the source of the news in this case the source is Richard Ivey School of
Business.
Usual effect: it's very important to know how to use this information, usual
effect shows you how much the news will impact the currency.
Like you see in the image above it shows that if the actual > Forecast then this news
will affect positively the currency.
Like you see in the image above:
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Actual = 58.0
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Forecast = 53,5
The Actual is bigger than the forecast...
This currency will be affected by this news positively.
Remember:
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Yellow color: Low impact.
Orange color: Medium impact.
Red color: huge impact.
Here is an example of a currency that is affected negatively by the Non-Farm
Employment Change news release:
2. The second thing to do is to tighten your stop losses.
This is very simple.
If the trade goes in your favor, Move your stop loss.
This will help you to:
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Guarantee your trades.
Maximize the profit from the trade.
Limit the risk of losing.
Exit the trade:
There are a lot of reasons that can push you to exit a trade.
Here are 5 reasons in my opinion that could obligate you to close a trade:
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According to your system you concluded that you have to close the position.
For more than 3 days the position displays a loss.
You confront technical issues in your laptop or in your trading platform.
You have emotional problems (greed and fear).
Bad news are coming about the pair of the currency you trade.
In my scalping strategy I exit the trade using a simple Moving averages technique:
If you open a long position...
Once the 3 moving average begins to cross the 7 moving average from the top to the
bottom, close the position:
On the other side, If you open a short position
Once the 3 moving average begins to cross the 7 moving average from the bottom to
the top, close the position:
PS: Make sure to confirm your decisions using the momentum indicator because
sometimes it could be a fake cross.
I exit the market also using the Fibonacci retracement.
If you go long in a position you just need to wait until the price approach the 61,8%
Fibonacci resistance line
Then exit the trade (like you see in the image below)
If the 61,8% Fibonacci line has been breached by the price
Open a new buy position and target the 127% Fibonacci line (like you see in the
picture above the price breached the 61,8% level, then the price continue its direction
to the 127% Fibonacci level, it's a kind of a big deal almost 80 pips as an additional
gain).
If it was not the case, just close the position and collect your profit!
Otherwise, if you go short (Sell position) you need to wait until the price approach the
61,8% Fibonacci support line.
Then get out of the market!
If the 61,8% Fibonacci support line has been breached by the price, target the 127%
Fibonacci level.
[Make sure you enter the market in the direction of the major trend]
Conclusion
The Forex scalping is a strategy that needs to focus the whole of the
day Monitoring the market changes.
It's not easy at all to scalp the market because your target profit range from 5 to 30
pips
You are obligated to pay attention to several variables (like currency spreads).
This strategy you just discovered, builds significant results if you use it the right way.
What I recommend is to train yourself for enough time using a demo account before
you use it in a real account.
And now tell me
Do you use the Forex scalping?
Do you use any special strategy to scalp the Forex market?
If you have any question, ask!
Article Source:
http://investoune.com/forex-scalping/
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