The fact that you are here means that you most likely know what scalping is. For those that don’t, scalping is one of the fastest styles of trading, you are looking for very short term profits putting on a vast amount of trades. It is also considered to be one of the riskiest trading strategies that you can do as it is far harder to put proper risk management in place due to its quick nature. It is the main strategy style that many in the outside world would compare to gambling, simply due to the fact that you are putting on so many trades in the hope that more win than lose (that is how it is seen from the outside). Even with its risks, this does not mean that you should not take it up as your main style, a lot of people make a lot of money out of it.
Before we get into some of the easy to use strategies, let’s just outline exactly what scalping is, as many have a misconception as to what is involved and some even see it as the easy route to money, which we must point out now is certainly not the case. Scalping is all about putting on small trades trying to make small profits, normally between 5 to 10 pips. When done over a longer period of time these small profits all add up to larger profits. For this reason, you are required to use an account with low spreads and preferably low commissions too. When scalping one bad trade could potentially wipe out the profits of 4 or 5 good ones, which is why it can be so risky.
In order to be a good scalper, you need to have the right mindset for it, there is a lot of stress that comes with scalping, you need to be able to deal well with it, you also need to be able to deal with a lot of risks, if you are a very risk-averse person then you may struggle to keep scalping for long, as you will always be putting extra risk on your account. You also need a broker with pretty good servers, as scalping is so quick, you need a broker that is able to activate the trades quickly, this also goes for your trading platform. If there are any delays within the platform when communicating with the broker, it could be the difference between a winning trade and a losing one.
The other thing that a scalper needs is volatility, if the markets are not moving then there is very little chance or opportunity to make any profits. It doesn’t matter if h markets are moving up or down, just as long as they are moving. If the markets are not moving at all, then it may be time to take a break or think about a different style of trading for the time being. You need to learn how to read charts and how to get them quickly, scalpers normally use charts ranging from the 1-minute chart up to the 1-hour chart, charts any bigger than this will not really be useful as you are looking for smaller movements rather than large ones. Some people decide to scalp before, during, or after major news events, this can be very profitable but also very risky, so unless you know what you are doing, we would advise avoiding the news.
So we know a little about scalping, now let’s take a look at some of the more simple scalping strategies (in no particular order) that you could try out.
Volume and Price Action
When using this strategy it is required that you eat a few volume indicators to help you look for price action, the strategy is based on the idea that changes in volume are normally then followed by some price action. So in that way, the volume will act as your signal and the price action would then act as your confirmation. When the volume is low, it can be an indication that the trend is beginning to slow down and that a reversal may be approaching, or that it needs to take a break before then continuing the trend. Scalpers need to see their patience when the markets are ranging, they need to spot volume spikes alongside the price action, attempting to buy or sell before the price moves. If you are planning on using this strategy the be aware of where you get the information from, if it is a broker give statistic then it may only be taking into account the orders that they themselves are fulfilling, you won’t be able to get an entire picture as to what the actual volume is, but some indicators make a god job of it.
Exponential Moving Averages
This strategy relies on EMA (exponential moving averages) indicators. You most likely would have heard of them at some point through your journey. The EMAs are pretty easy to use, they work by showing us the underlying trend that is currently behind a forex pair, it does this by showing the average price over a certain period of time instead of showing you the current price. The strategy is pretty straightforward, when the price is above the EMA then it can be a signal to sell, when it is below the EMA then it can be a signal to buy. It is recommended that you use more than one EMAIL though, it helps to improve the accuracy of the signals that you are receiving. Using a slower and a faster EMA, one on the 10 EMA and one on the 20 EMa seems to work well, a sell signal would be when the price reaches the lower EMA, a buy signal would be when the price reaches the higher EMA.
Stochastic and Trend Lines
To use this strategy you will need to use the Stochastics indicator as well as trend lines. Stochastics is pretty straight forward, it basically helps to measure whether something has been overbought or oversold, if it is above 80 then it is classified overbought, and below 20 as oversold. This strategy works best during an up or downtrend, you need to draw the trend zones onto the chart, either yourself or using another tool or indicator. The strategy works by looking for the trend line, when it is met or crossed, you would then use stochastics to look for it being oversold or overbought as a signal to enter the trade. It is a slightly safer strategy as it requires two conditions to be met, the trends one and the stochastic is another.
Dynamic and Static Support and Resistance
This is a strategy that is pretty much entirely based around support and resistance levels. The static support and resistance levels refer to the levels from the beginning of the day, the highest and the lowest points. It is best to identify these when you first start trading. Dynamic support and resistance levels on the other hand are always changing and depend on the market movements and fluctuations, they can be a lot more subjective than static levels, someone may have certain levels while another trader may have different levels. This strategy will look for where the static and the dynamic support levels meet, these will be your buy and sell positions. You can use other indicators as confirmations, but the strategy is simply where the two trend lines meet.
One that you most likely would have heard of as it has become increasingly popular. Bollinger bands are used to help you see volatility, the further they are from the centre, the higher the levels of volatility. If the bands are close together then it means that the markets will most likely be ranging and for a scalper, this is a time to avoid trading. The strategy is simple, when the prices are by the upper band then you sell, when the prices are at the lower band then you buy. It can be done in a ranging market but it is far more difficult to be consistent in a ranging market. Try and set a stop loss around 10 pips above or below the bands in order to keep tight stop losses but to also allow a bit of movement.
So those are a few of the strategies for scalping which are regarded as pretty straight forward, not all strategies will work in all situations, it is also important that you do not try to over complicate things, if you do then you could end up confusing both yourself and muddying the signals that you have been receiving. Make sure you are also backtesting your strategy and also trying it out on a demo account to ensure that it is both consistent and that you are able to successfully implement it as well as fully understand h signals that you are receiving. Scalping can be very profitable, but also very risky, so practice, practice, practice, and then practice some more.