Tag: Forex Scalping

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Forex Basic Strategies

15 Minute Forex Scalping Strategy Using The Donchian Channel Indicator

Introduction

Introduction

Introduction

Scalping is a trading strategy designed to profit from small market changes. The Scalpers took a couple of trades in any trading session, and the goal of every scalper is to seize gains when they appear on a price chart because the aim is to have a few small wins rather than one large one. Scalping is one of the most challenging style of trading to master because it requires unbelievable discipline and focus.

A scalper must follow the rules of their trading strategy like a religion because one large loss can easily wipe out dozens of successful trades. One of the most critical aspects of scalping is liquidity because we would not scalp any instrument that is not liquid enough and ensuring liquidity also ensures that we are getting the best price while entering and exiting in a trade. In this article, we will show you how to scalp the 15-minute trading timeframe by using the Donchian Channels Indicator.

Working Of A Donchian Channel

Donchian channel consists of three lines, which are generated by the moving average calculations that comprise an indicator formed by the upper and the lower band, also the median band. The celebrity trader Richard Donchian developed the indicator in the mid-twentieth century so that he can identify the trend of the market. The area between the upper and lower band represents the Donchian channel. The indicator identifies the bullish and bearish extremes areas, which are followed by the reversals or breakouts in price action.

15-Min Trading Strategy

The scalping strategies are only created to trade the lower timeframes, such as 1, 3, 5, 15-minute timeframes; do not apply any of these strategies on any higher timeframes; otherwise, you will face some trouble in your trading.

As you can see in the below image of the USDJPY forex pair, overall, the instrument is in a strong uptrend, and when the price action hits the lower band of Donchian channel it indicates the buy trade, and when it hits the upper Donchian channel, it means to go for a short trade.

In the below image the price action gives us three buying and three selling trade, most of the time the buying trades perform bit longer than the selling trades, it is because the flow of the market was up, but for the scalpers, the flow doesn’t matter, all the scalpers want is to in and out from the market. Close your position when the price action hits the opposite channel, and when you take the entry, if the price action goes a bit against you { for, e.g., 4 to 5 }, then close your position immediately and wait for the new signal.

The below image represents a couple of buying and selling trades in a downtrend. The goal of every scalper is to, first of all, check the trend of the market, and expect more trades by following the trend and simply expect less counter-trend trades. You can see that the below image of the GBPNZD forex pair shows us the nine selling and six buying trades. Most of the selling and buying trades worked very well, and each trade generates a significant amount of money for us. The whole goal is to activate the position when the price action hits the Donchian channel and close your position when the price action goes a bit against us.

Range Trading

If you trade the trending market, then expect the more trend-following trades, and if you scalp the ranges and channels, then you can expect both the buying and selling trades because in ranges and channels both of the parties hold the equal powers this is the reason ranges and channels are favorite for the scalpers. The image below shows the 15-minute chart of the NZDJPY, forex pair, which shows the ranging market, and in range price action gives the five selling and four buying trades. In the ranging market, we suggest you go for the 1:1 RR trades because the price action more often spikes in ranges.

Scalping Trading By Following The Market Trend

Buy Trade

The scalping is all about having a strong and aggressive mind to face the rollercoaster ride in the market, and some of the conservative and confirmation traders want to scalp the market, but they little hesitate to react on every signal, so if you are a conservative or confirmation scalper then here is good news. We specially created a strategy that suits your trading personality. In this strategy, you will find fewer trades, but the trades will be accurate. Apply this strategy only on the fifteen-minute timeframe and avoid trading the ranges and channel markets because both situations have higher chances of fake outs. First of all, on a lower timeframe, find out the clear uptrend in any instrument, and when the price action hits the lower Donchian channel go long and hold your position till the price action hits the opposite channel. Do not go for selling trades in the buying market simply wait for the next buying trade. In the below image, by following the trend of the market, we only got the five buying trades in the EURAUD forex pair. Each of our trade travels a significant amount of time; then the price action generates the next trade. By following this strategy, you will face less mess and good trades in the market.

Sell Trade

The image below represents the six selling trades in the GBPUSD forex pair, you can see that the downtrend was quite smooth, and after activating our every trade, the price action immediately goes into our favor. In the strong trending market, you can go for the smaller stop loss and book profit when the price action gives the buying signal.

Conclusion

Scalping is not easy, but it is a quick way to make some money from the market. As a scalper does not expect a continuous win, most of the scalpers face the ups and downs in their trading journey. Every trading day awaits a couple of buy and sell trades, do not judge yourself or your strategy according to every single trade, instead of at the end of the day find out how many wins and losses you have. If the end of you have more wins than the losses, then it means you have a successful trading day. Scalping works very well on the lower timeframe and the strategies we show in this article created, especially for the 15-minute trading timeframe.

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Forex Basic Strategies Forex Trading Strategies

Advantages and Disadvantages of Scalping Strategies

Scalping strategies on Forex are quite popular among beginner traders, although it is not really fully justified. High-frequency trading (keeping the market position for a very short time) allows quick real-time gains and avoidance of swaps. In short periods it is difficult to make an accurate forecast. The scalping training in a demo account allows […]

Scalping strategies on Forex are quite popular among beginner traders, although it is not really fully justified. High-frequency trading (keeping the market position for a very short time) allows quick real-time gains and avoidance of swaps. In short periods it is difficult to make an accurate forecast. The scalping training in a demo account allows […]

Scalping strategies on Forex are quite popular among beginner traders, although it is not really fully justified. High-frequency trading (keeping the market position for a very short time) allows quick real-time gains and avoidance of swaps. In short periods it is difficult to make an accurate forecast. The scalping training in a demo account allows the beginner trader to improve the speed of being able to react and learn how important it is to understand intuitively the behavior of all members of the financial markets. However, it is better to open real operations in longer periods. From this summary, you will learn what is scalping, what are its advantages and disadvantages of high-frequency trading, and also you will know practical examples of strategies.

Scalping for Beginners

Scalping is a high-frequency operation that provides earnings on a set of trades in a short period of time. For traders just starting to trade, this trading strategy is considered dangerous because the trend is chaotic in short-term charts (the so-called price noise effect) and therefore can hardly be predicted. On the contrary, I think a beginner should train scalping before dealing with medium and long-term trading strategies. Scalping helps train attention, reaction speed, and visually shows gliding problems. Although you should be highly focused and emotionally stable when using scalping, if you have understood the theory, the strategy is an excellent simulator for practicing these skills.

What is Scalping?

What is scalping in Forex trading? The perception is that this is a type of trading where A scalping trader performs many operations in a very short time and closes them in minutes. Actually, this is not a very accurate definition. Scalping suggests placing orders a short distance from the opening point. The trader leaves the trade in a short time, as soon as the price changes at least a few points, including the spread. Even an open transaction based on this principle already refers to scalping. Logically, to make a profit, a trader must make dozens of such transactions in one day, but their number is not that important. One of the conditions for successful scalping is to pick up a good time in relation to predictable volatility.

Types of Scalping

Scalping in the news. At the time of departure of important news or the publication of economic data, there is a very significant increase in volume and volatility that can last from a few minutes to a few hours. This is the best time for scalpers. There are two ways to operate:

Placing opposite pending orders a few minutes before publishing statistics and removing the order that does not work after publishing. The opening of several short-term trades for directly correlated pairs in the first few minutes after the publication of news in the main trend direction. Making money using such a strategy is quite difficult. Both methods are not perfect and have their advantages and disadvantages, read more about them in this summary.

Types of scalping depending on the time frame chosen:

Pipsing: It is called the most profitable and risky strategy (in terms of profit, the issue is very controversial). Trading takes place in the M1 interval, transactions are carried out in the market for a few minutes. It happens that 1-2 points are enough for the scalper since maximum leverage is used (sometimes up to 1:1000).

Medium-term scalping: Suggests a relatively fewer number of open trades, the duration of which is 5-15 minutes. The range is M5. The size of the leverage is determined by the trader.

Conservative scalping: Transactions can last up to 30 minutes, the time frame is M15.

Types of scalping according to technical strategies:

Scalping with analysis of various time frames. Such a strategy is applied when negotiating with the short-term trend. It is possible to invest at virtually any time, so classic trend negotiation strategies for time frames per hour will not work there. Such a trend may arise, for example, during a brief pause before the news release, which is quite controversial, judging by the forecasts. Or you can start during a temporary balance of bulls and bears. The essence of the strategy: this type suggests that you identify the beginning of a trend in the H1-H4 range by means of a trend indicator or a confirmation oscillator. Then, analyze the market and look for signals in the M5 timeframe. I will detail later with an example about this particular strategy.

Trading based on major currency pairs. The main pair is the pair, through which the scalper makes trading decisions, but carries trading on a correlated pair that is a bit behind. For example, the EUR/USD pair reacts immediately to the publication of US statistics. If EUR/USD and USD/JPY are increasing, then EUR/JPY will also increase.

Intuitive scalping. Considering that a scalper has little time to make decisions, there is a category of traders that use their intuition. They can interpret the market in a very intuitive way and for that reason, they do not need technical indicators.

I will not describe the subdivision by the type of indicator (graph, level analysis, etc.) as it is logical. The rating can be expanded, and I would appreciate it if you, my dear readers, would help me by offering your scalping strategies variants in the comments located at the end of the article.

Rules for Successful Scalping

There should be no restrictions by the broker to employ such strategies. There should be no restrictions on the offer with respect to the number of open trades and the minimum waiting time.

Instantaneous execution of orders: It depends largely on the broker, liquidity providers, the Internet connection, and the trading platform itself.

Great financial leverage: Professional scalpers work with leverage of 1:500-1:1000, but according to European regulators’ standards, maximum leverage is reduced to 1:50. The instrument should have the best liquidity.

So what is scalping in trading? I think is clear. Let’s move on to the advantages and disadvantages of strategy.

Advantages of Scalping Strategies

It is trading based on fundamental analysis. Technical indicators are rather used as complementary tools due to price noise in shorter time frames. Although it is not recommended to beginners to negotiate with news, in terms of training and use of simulators, this can be easier and more interesting than technical analysis. It’s all subjective, but I’d say this is a benefit of scalping.

Gives you the real chance to make a considerable profit. Everything is questionable, but before a professional, high-frequency trading can generate higher returns compared to daily trading strategies. In scalping, a trader manages to win on almost all price changes in both directions, on the contrary, in intraday trading, a significant part of the profit is “lost” due to setbacks and corrections. Besides, it doesn’t depend on the trend.

Scalping allows for profit when the market is traded unchanged. There are no swap costs (to keep the position open until the next day). I’d say the biggest advantage is training to negotiate scalping. With high-frequency trading, the trader has the ability to learn to understand much better the market inputs and outputs, the nature of the market, and self-development of intuition. After mastering scalping which is much more complex, intraday and long-term strategies will seem easier.

Disadvantages of Scalping Strategies

Spread: No matter how long your position stays open, the difference will be the same. A scalper takes most of the benefits.

Technical problems: Slippages, delay in execution of orders, platform failure, etc. In scalping, only a second is sometimes important, and a delay can result in a loss that can exceed a small gain. In scalping, only a second is sometimes important, and a delay can result in a loss that can exceed a small gain.

Market noise: Random price changes, insignificant for long-term periods, can close the order with a stop in short-term periods.

Limited choice: Only liquid currency pairs with moderate volatility are suitable for Forex scalping trading. Exotic pairs are not appropriate. The problem of precise quotations and broker restrictions. Some companies prohibit scalping or there is a restriction on the minimum waiting time for negotiation.

Emotional stress means the need to be focused on the small details. You must control your operations all the time and make your decisions quickly. At some point, a reseller will feel emotional exhaustion and lose their target. This problematic situation can be resolved through the use of robots and scripts.

In order to obtain the greatest benefits in scalping, it is very necessary to use fairly high leverage, and clearly, this circumstance significantly increases the risks. But even so, despite all the downsides of scalping trading, scalping is, in the first place, satisfaction and excitement. That’s why many traders like it a lot.

Conclusion

Scalping is one of the currency trading strategies suitable for both currency pairs and other asset CFDs. Scalping is convenient in flat trading and when the market is not trending. Some people consider it highly profitable, others say it is very risky. In any case, before trading with a scalping, any scalping strategy needs to be practiced and enhanced in a demo account. My wish is that this article might have helped you respond to the questions you had.

Categories
Forex Trade Types

Let’s Talk About Scalping In Forex

What is scalping in Forex trading? The perception is that this is a type of trading where a trader enters several trades in a small period of time and closes them in just a few minutes. But this is not the most correct definition. Scalping suggests placing orders a short distance from the opening point. […]

What is scalping in Forex trading? The perception is that this is a type of trading where a trader enters several trades in a small period of time and closes them in just a few minutes. But this is not the most correct definition. Scalping suggests placing orders a short distance from the opening point. […]

What is scalping in Forex trading? The perception is that this is a type of trading where a trader enters several trades in a small period of time and closes them in just a few minutes. But this is not the most correct definition. Scalping suggests placing orders a short distance from the opening point. The trader leaves the trade in a short time, as soon as the price changes at least a few points, including the spread. Even an open transaction based on this principle already refers to scalping. Logically, to make a profit, a trader must make dozens of such transactions in one day, but their number is not that important.

Types of scalping and general examples of strategies:

Scalping in the news. At the time of departure of important news or the publication of economic data, there is a sharp increase in volume and volatility that can last from a few minutes to a few hours. This is the best time for scalpers. There are two ways to operate.

Placing opposite pending orders a few minutes before publishing statistics and removing the order that does not work after publishing. The opening of several short-term trades for directly correlated pairs in the first few minutes after the publication of news in the main trend direction. Making money using such a strategy is quite difficult. The two methods have their advantages and disadvantages, read more about them in this summary.

Types of scalping depending on the time frame chosen:

Pipsing. It is called the most profitable and risky strategy (in terms of profit, the issue is very controversial). Trading takes place in the M1 interval, transactions are carried out in the market for a few minutes. It happens that 1-2 points are enough for the scalper since maximum leverage is used (sometimes up to 1:1000).

Medium-term scalping Suggests a relatively fewer number of open trades, the duration of which is 5-15 minutes. The range is M5. The size of the leverage is determined by the trader.

Conservative scalping. Transactions can last up to 30 minutes, the time frame is M15.

Types of scalping according to technical strategies:

Scalping with analysis of various time frames. Such a strategy is applied when negotiating with the short-term trend. It is possible to invest at almost any time, so classic trend negotiation strategies for time frames per hour will not work there. Such a trend may arise, for example, during a brief pause before the news release, which is quite controversial, judging by the forecasts. Or you can start during a temporary balance of bulls and bears. The essence of the strategy: this type suggests that you identify the beginning of a trend in the H1-H4 range by means of a trend indicator or a confirmation oscillator. Then, analyze the market and look for signals in the M5 timeframe. It will be explained with an example of this strategy later.

Trading based on major currency pairs. The main pair is the pair, through which the scalper makes trading decisions, but carries trading on a correlated pair that is a bit behind. For example, the EUR/USD pair reacts immediately to the publication of US statistics. If EUR/USD and USD/JPY are increasing, then EUR/JPY will also increase.

Intuitive scalping. Considering that a scalper has little time to make decisions, there is a category of traders that use their intuition. They understand the market in such a precise way that they do not need to use any technical indicator.

I will not describe the subdivision by the type of indicator (graph, level analysis, etc.) as it is logical. The rating can be expanded, and I would appreciate it if you, my dear readers, would help me by offering your scalping strategies variants in the comments located at the end of the article.

Rules for successful scalping trading:

There should be no restrictions by the broker to employ such strategies. There should be no restrictions on the offer with respect to the number of open trades and the minimum waiting time.

Instantaneous execution of orders: It depends largely on the broker, liquidity providers, the Internet connection, and the trading platform itself.

Great financial leverage: Professional scalpers work with leverage of 1:500-1:1000, but according to European regulators’ standards, maximum leverage is reduced to 1:50.

The instrument should have the best liquidity.

So what is scalping in trading? I think the answer is clear. Let’s move on to the advantages and disadvantages of strategy.

Advantages of Forex scalping strategies:

Trading should be based on fundamental analysis. Technical indicators are rather used as complementary tools due to price noise in shorter time frames. Although it is not recommended to beginners to negotiate with news, in terms of training and use of simulators, this can be easier and more interesting than technical analysis. It’s all subjective, but I’d say this is a benefit of scalping.

It gives you a chance to do something important for profits. Everything is very relative, but if you consider yourself a professional, scalping trade can generate higher returns compared to daily trading strategies. In scalping, a trader manages to win on almost all price changes in both directions, while in intraday trade, a good part of the profit is “lost” by the existence of setbacks and corrections. Besides, it doesn’t depend on the trend.

Scalping allows for profit when the market is traded unchanged. There are no swap costs (to keep the position open until the next day). I’d say the biggest advantage is training to negotiate scalping. Thanks to high-frequency trading, the trader better understands the moments of entering and leaving the trades, learns to develop intuition, and knows the nature of the market. After mastering scalping which is much more complex, intraday and long-term strategies will seem easier.

Disadvantages of Forex scalping strategies:

Spread. No matter how long your position stays open, the difference will be the same. A scalper takes most of the benefits.

Technical problems. Slippages, delay in execution of orders, platform failure, etc. In scalping, only a second is sometimes important, and a delay can result in a loss that can exceed a small gain.

In scalping, only a second is sometimes important, and a delay can result in a loss that can exceed a small gain.

Market noise. Random price changes, insignificant for long-term periods, can close the order with a stop in short-term periods.

Limited choice. Only liquid currency pairs with moderate volatility are suitable for Forex scalping trading. Exotic pairs are not appropriate.

The problem of precise quotations and broker restrictions. Some companies prohibit scalping or there is a restriction on the minimum waiting time for negotiation.

Stress, you must be constantly focused on the small details. You must control your operations all the time and make your decisions quickly. At any time, a reseller may feel emotionally exhausted and lose concentration. This dilemma could be solved in some way by scripts and robots.

To have profitability in the scalping, it is very necessary to use high leverage, and this significantly increases the risks. But even so, despite all the downsides of scalping trading, scalping is, in the first place, satisfaction and excitement. That’s why many traders like it a lot.

Best currency pairs for scalping:

Knowing how to choose the right instrument of negotiation is very important for scalping, but, in scalping where, you fight for each point, and a sudden change usually translates into losses, its importance is fundamental…

Basic requirements for a better currency pair for scalping:

The narrowest and most floating spread possible. This condition is fair for highly liquid pairs and large transaction volumes: EUR/USD, GBP/USD. If you want to compare differentials for the pairs offered by the different brokers, you can use the data from the MyFxBook portal.

Moderate volatility. Liquidity and volatility have a kind of reverse correlation. It is difficult to buy/sell a currency pair with high volatility. And vice versa, high-liquidity currency pairs have low volatility. It is very important to maintain balance, the volatility calculator can help you to do so. According to the calculator, the best currency pair for scalping is EUR/USD.

For night scalping (flat), you can trade the pair with relatively low volatility USD/CAD, AUD/USD. I want to emphasize that the meaning of the best currency pair for scalping is subjective. Price movements depend as much on external macroeconomic factors as on foreign exchange manipulations by large investors (market makers). Then, depending on the time, the different currency pairs of major currency pairs or cross pairs can become the best for scalping. So, there are some tips on how you can select the best pair for scalping:

You must feel comfortable when you operate. Find your own trading style and the most suitable currency pair, investing all the time you need in training in a demo account.

Be flexible. Today you get positive results by trading in one currency pair, tomorrow, in another currency pair.

Manage foreign exchange risks. In addition to the general rules on the volume of open positions, there is one more rule regarding scalping: you should not open transactions for the two increasing currency pairs at the same time. While it can double your profits, it also doubles your potential risks, as both pairs can be reversed at the same time.

There are no recommendations on the best indicators and technical tools for scalping. Everything is individual here. Someone is satisfied with the standard MT4 indicators, someone installs unique authoring tools. Trading performance does not depend as much on the tools as on the ability to use them.

Forex scalping strategies: practical examples

Scalping requires the trader to be monitoring permanently trades and open positions. The strategies described below are based on technical indicators but are used as complementary tools for intuition and practical experience. Therefore, before you start using these strategies in a real account, practice them over and over again until they are fully automatic. And remember that there are no perfect strategies and the suggested ideas are just the basics. ¡ Don’t be afraid to perform certain experiments by adding something of your own, create something of your own, unique based on this basis!

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Forex Basic Strategies

The Most Reliable 5-Minute Forex Scalping Strategy

Introduction

Introduction

Introduction

Scalping is a type of trading that involves placing many trades in a single day to profit from minor price changes in the Forex market. Traders who use this strategy are known as scalpers. It is crucial to have a robust exit strategy for scalpers to earn large gains from small market moves.

Scalping strategies are mostly applied to the intraday markets, and the trade holding duration can vary from a few seconds to minutes. For novice Forex traders, this type of trading is not recommended as scalping involves a fast-paced activity that requires precision in timing and execution.

We must always use a smaller timeframe such as a 5-min or 1-min for scalping the Forex market. We can use various reliable indicators for scalping, but in this article, we’ll learn how to scalp the 5-minute timeframe using Bollinger Bands.

Why Bollinger Bands?

Bollinger Bands is a technical analysis tool that was developed by John Bollinger. This indicator is composed of three lines as follows – A Simple Moving Average, which is the Middle band, the Upper Band & the Lower Band. The usage of Bollinger Bands indicator goes like this – the closer the price action moves to the upper band, the more overbought the market. Likewise, the closer the price moves to the lower band, the more oversold the market. The bands in this indicator widen and contract based on the market volatility. They expand when the market activity is increased and contract in choppy or less volatile markets. Let’s use this indicator in the 5-min timeframe to identify potential trading opportunities.

Scalp Trading With Bollinger Bands

We must go long when the price hits the lower band and look out for short-selling opportunities when prices hit the upper band. This is the traditional way of trading the market using Bollinger bands which is still being used by scalp traders across the world. The reason why this strategy is famous is because of its ease of usage and its ability to milk quick buck from the market.

Scalping Ranges – Example 1

In the below price chart, you can see that we have taken five buying and four selling trades in the EUR/NZD Forex pair. In this example, we have applied this strategy in a ranging market. When the price approached the support line, and when it also hit the upper Bollinger band, it is an indication for us to go long. Similarly, when the price goes near the resistance line in a range, it is an indication for us to close our long positions and look for selling opportunities.

By doing this, we have been continuously engaged in the market and made some consistent profits overall.

Example 2

Below is another example of scalp trading the Forex market when it is in the consolidation phase. Typically in a range, both the parties have equal strength. Also, it is a known fact that it is comparatively hard to trade the consolidation markets than the ranging markets. However, using this strategy, we have managed to take five buying and three selling trades in the GBPJPY Forex pair.

Scalpers typically go long or short when the price approaches the upper or lower range lines. This is the right approach, but by pairing that strategy with an indicator like Bollinger band can drastically increase the probability of those trades. The USP of the Bollinger band indicator is that it works well in all the types of market situations. It really doesn’t matter whether you scalp the ranges, channels, or even trends; this strategy will always provide reliable trading opportunities.

Example 3

In the below price chart, the price was dragging towards the upside, indicating a buying momentum, but it ended up forming a channel. In a channel, both parties hold equal power and us being scalpers; it is easy to make money from both sides. Below we can notice that if we go either long or short, we can make an equal amount of money if we are right. This is the major benefit of using Bollinger bands in channel conditions.

Scalping Trends – Example 1

Below is the price chart of the AUD/JPY currency pair in an uptrend. As you can see, during the pullback phase, the market gave us the first buy trade. When the price action approached the upper Bollinger band, the price immediately moved in the opposite direction. As a scalper, prepare your mind for these kinds of quick moves. Follow the rules of the strategy to the point, and if any trade goes three to four pips against you, immediately exit and wait for the next opportunity.

Our third buy trade also performed, but it didn’t go for bigger targets. Instead, the price action immediately reversed, which end up generating a sell signal. The next buy trade was also ended u with minor profits. For scalpers, even a profit of 8 to 10 pips can be considered good in a single trade.

Example 2

Below is an example of buying and selling trades in an uptrend in the AUD/JPY pair. We are saying this pair is an uptrend after analyzing its higher time frame. In the lower timeframe, the market may seem to be ranging, but since we know that this pair is up-trending overall, we must consider buying opportunities over sell signals.

The markets gave us five buying and three selling trades in this pair. Even though we have identifies many sell signals, we recommend not to enter those unless you have confirmation. Always remember that trend is your friend and trade according to the trend. This is the essence of scalp trading the trending markets. Therefore, when scalping trends, always go for bigger targets by following the trend. Also, expect less accuracy on counter-trend trades.

Conclusion

It requires a lot of practice to master scalping. Since the time frame is small, you must be quick in everything you do while scalping. Also, talking additional confirmations is not possible in this form of trading because of its swift nature. Please practice these strategies on a demo account before you apply them on the live markets. All the best. Cheers!

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Forex Trade Types

Scalping Vs. Day Trading: Which is More Profitable?

Asking this kind of question reveals one is trying to start with trading and wants to pick up the right path. Of course, profits are an end means mostly, however, the method how you get them defines you as a trader. Where one trader is profitable with day trading, the other is when scalping. To […]

Asking this kind of question reveals one is trying to start with trading and wants to pick up the right path. Of course, profits are an end means mostly, however, the method how you get them defines you as a trader. Where one trader is profitable with day trading, the other is when scalping. To […]

Asking this kind of question reveals one is trying to start with trading and wants to pick up the right path. Of course, profits are an end means mostly, however, the method how you get them defines you as a trader. Where one trader is profitable with day trading, the other is when scalping. To get the whole scope around this question, we would need to understand what these two strategy categories require out of each trader and other pre-requirements. Later on, we would need to tackle the way you fit in your preferred strategy to your personality and lifestyle, and then answer the question in a simplified way, but with a good punchline for every trader who wants to get something out of this game.

Scalping and day trading are trading strategy categories with an infinite number of variations, but they have something in common. They both involve positioning on forex, equities, crypto, and other markets. Now this is getting complicated, not only we have many strategies, we now have many different markets and also many different approaches. Does one particular strategy, market or approach stand out from others in terms of profitability? Certainly, but it is more about the trader behind the wheel than the strategy itself.

Before all, scalping involves shorter time frames while day trading, or intra-day trading, presumably is about higher time frames up to 4 hours. Scalping is more action-packed while intraday- trading does not have to be, yet it depends on how many positions a trader has across different markets and assets. As you can see, we are adding more and more important variables pointing to the answer to this question is – it depends. This answer does not solve anything, just makes things fuzzier. However, there are paths beginner traders can take to discover what fits them and effectively what is more profitable. 

Scalping strategies can also be applied on higher timeframes, however, these strategies deviate from what is usually considered scalping. They are more a mix of several ideas and are the result of a trader or traders looking for ways to improve on the scalping strategy they started with, all according to their life possibilities. Lower time frames require exhausting attention and it is common for traders who have developed scalping strategies to try to automate them. A robot is faster and does not have emotions that could stay in the trader’s way with this type of trading. If you do not know by now, getting emotional while trading is going to adversely affect your financial balance and your mental balance too. So, we have another variable into the definitive answer to the main question.

Anyways, scalping does not have to be automated and then it requires focus during your trading day. This attention is heavy on your body and mind, you may reach a point of saturation and even health problems regardless if your scalping strategy is working or not. Some scalpers work in a team, where the load and attention are shared, however organizing in such a way also requires traders’ goals alignment. Sometimes, successful trades establish firms and employ a workforce that can follow multiple assignments and the main trader just makes decisions. Scalping also requires certain market conditions and, like every strategy, a lot of research where it is performing the best.

On top of that, since it is usually applied on shorter timeframes, the spreads and commissions are also a factor in how profitable it can be. Therefore, research on broker trading conditions is also one of the priorities when developing scalping strategies. Certain scalpers require no more than 1 or 2 points spread to be effective long term. If we compare scalping and other, higher timeframe strategies, it seems scalping requires additional attention and research to other variables that limit them, yet they may not result in better overall performance than intra-day strategies. 

Since scalping strategies do not involve waiting, they are action-packed and fun, many young traders are attracted to them. It is like a beginner trader seeks to get emotional while experienced have set up systems that block them or just have developed skills to keep emotion at bay when they trade. Therefore, we do not advise developing scalping strategies for beginners unless you want to get into a bad emotional state after one or more accounts are down to zero and learn from this mistake first hand. Experienced traders keep an open mind and can try scalping if they see they can expand to trading ranging markets, but know they do not seek trading thrill, just better performance. 

Moving on to intra-day strategies. Now, this is a very broad category, basically, it only points at a certain time frame below the daily. Telling if these strategies are more profitable than scalping is very misleading. Yet, they are certainly less action-packed and they might allow you some screen away time. Emotions are still in, as the prices move in your favor and out so are your feelings, like a controlled roller coaster by the tides of the markets. So now we may have something cleared out, scalping strategies might be more fun but beginner traders do not have the best of chances and will learn out of mistakes, it is just a matter of how much it is going to cost them. Intra-day strategies may learn them patience, yet they are also going to be costly. 

Beginner traders simply have better chances if they learn from the start what to do and what not. There are many sources about this yet people get attracted to the fun stuff about trading such as strategies. That is why the question above is one of the most popular however it is not leading beginner traders in the right direction. Whatsmore, the internet will keep giving you the popular stuff and you may have trouble finding the right answers. Psychology and Money management topics are not popular, they are boring. Whatever strategy, scalping, or intra-day type, traders do not have a chance without the right mindset and risk/money management. 

Now we have some answers to this vague question, however, let us assume you have these two main trading pillars already developed, should you go with scalping or doing the higher timeframes? Your risk management and psychology are a part of your strategy, they are one tangible and intangible system part. Whatever your strategy type is, it is going to work out, just focus on the two main parts first. Considering strategies outside the risk management and the right mindset is like selecting a weapon to shoot blindfolded. You are going to miss most of the time whatever your choice. If we had to pick one strategy type to go with it would be trend following on the daily timeframe. Simply because trend following strategies have some proven records to perform better and daily timeframe because it eliminates some risks out of trading sessions and noise. 

Lastly, let’s mention one step traders should complete having at least some outlines of what trading style they might like and what their strengths, weaknesses, and traits are. Look out for trading personality tests online, they combine some popular personality assessments like Myers–Briggs and others with trading practices. As a result, your trading will have some weaknesses you need to work on and also strengths that should be exploited with a particular strategy. According to this test, you may try to make one that fits your lifestyle. Now, this journey requires a lot of dedication and work. Consider our other articles about how to start your way up using free resources and guides on various topics. The test result is for you only, and therefore the answer to the question that hopefully sets you on the right path. 

Categories
Forex Trade Types

Scalping Strategy: 10 Pips Daily that Can Burn Your Account

There are many discussions in the world of the foreign exchange market, and for some time there have been about the strategy of scalping in forex of “10 pips a day”. It is a trading strategy that says “get rich quickly” by accumulating only 10 pips each day. Well, we turn to you to inform […]

There are many discussions in the world of the foreign exchange market, and for some time there have been about the strategy of scalping in forex of “10 pips a day”. It is a trading strategy that says “get rich quickly” by accumulating only 10 pips each day. Well, we turn to you to inform […]

There are many discussions in the world of the foreign exchange market, and for some time there have been about the strategy of scalping in forex of “10 pips a day”. It is a trading strategy that says “get rich quickly” by accumulating only 10 pips each day. Well, we turn to you to inform you that not only will it not make you rich, but it will probably ruin your trading account if you give it enough time.

The lure of this system of scalping in forex is the perception that making 10 pips a day can accumulate large fortunes in a relatively short period of time. Because, as those who promote these strategies will tell you, it is easy to achieve this amount every day. But 10 pips each day should be feasible, right? Theoretically, yes. But as we already know, be consistently profitable in the Forex world is not a theoretical effort, but a practical one.

In this article, we will see the controversial question of making only 10 pips in each trading day and why it does not work. Accordingly, you will need to learn a way to set performance goals that include the benefits as well as the risk taken to make those gains. But first, let’s discuss this 10 pips a day forex scalping methodology in greater detail.

What is the strategy of scalping in forex of 10 pips a day?

The idea behind this strategy is to aim for quick gains every day. As the name says, the goal is to achieve a gain of 10 pips every day. This sounds pretty simple, and in theory, it should be. But again, making a profit from the forex market is not theoretical.

Most strategies running around, which point to a small number of pips each day also carry a long stop loss. At least long compared to the potential nominal profit of each setup. This scalping strategy in forex is no exception. This is something distant from what we usually do, which aims at an appropriate risk-benefit of at least 1:2. Most strategies that aim to get 10 pips use a stop loss of 90 pips or larger. In essence, they take a huge risk for a small reward, relying on a high winning transaction ratio. And there lies the problem.

The Attraction

Some traders like strategies like this, and the reason is simple, they produce fast profits and promise high hit percentages. As we all know, winning is fine. Remember how you felt after your last trade winner operation. Or better yet, a series of winning operations. It feels good, doesn’t it?

Don’t feel bad after a victory operation. You do your job to find a favorable setup, which resulted in a profit. However, something is not right when you choose a system just because it induces a feeling of winning more often. Or at least that is the intention of the scalping strategy in forex.

As you can see, becoming a successful Forex trader does not mean winning, it means being consistently profitable. It is very clear that we have a big difference between these two issues. When you choose a trading system that is based on the success rate, you are letting your ego make the decision for you. Your ego wants a trading strategy that gives you that nice “win” feeling.

The logical side of your head wants a trading system that will grow your account. It is also the logical side that knows that it takes a lot of time and practice to become consistently profitable. Your ego wants the profits now and it doesn’t care how much capital he has to risk to get it.

The Disaster

Before we start talking about why the 10 pips a day forex scalping strategy is disastrous, we want to make one thing clear:

We’re not discrediting all scalping strategies. We know some of them to work. But what we are discrediting is the idea that you can target a specific number of pips every day, week, or month and “get rich quickly,” as stated by those who promote these strategies. It is nothing against this particular strategy, we are just using it as an example.

Now, let’s talk about why a strategy like this is dangerous.

Unfavorable risk-benefit ratio: The foundation of a system like 10 pips a day is a high probability of success. Therefore, this means risking a huge amount of pips for a relatively small profit.

Let’s use the example of 10 pips of take profit and 90 pips of stop loss. In order to be in “breakeven” in this strategy, your goal should be reached 90% of the time. That means out of 100 operations, you’d need 90 with winnings.

This is a high and unrealistic hit ratio for any trading strategy. And that would be just to keep the balance, that is, not to lose or win. If you want to make a profit, you need to make more than 90% of the time. Think about it this way: you have 2 consecutive weeks of earnings, achieving your goal of 10 pips each day. Then, for 10 days of trading, you have got 100 pips. At the end of those 10 days, you feel unstoppable.

On the 11th, the disaster hits. Your stop loss is hit, with a loss of 90 pips. So, after 11 days of trading, you make a profit of 10 pips. Demoralized and frustrated, you’re looking for a new strategy that will make you a millionaire. Does that sound familiar? This is the vicious circle in which most traders live and is the reason why using unfavourable risk-benefit ratios can be dangerous for your career as a forex trader.

Expectations that are unrealistic: Any trading system that is based on a fixed number of pips within a specific time period as a goal is a disaster waiting to occur.

Here is why…

The market moves with its own calendar. Every week is different, just like every day, hour and minute is different. A couple of currencies will not give you exactly the same kind of movement day by day or week by week. So why wait for the same amount of profit every day, every day? It just doesn’t make sense.

The market does not follow your calendar. To become a consistently profitable Forex trader must learn to take what the market gives you. This could mean not operating for a day or even a week. To say that a market will move in a way that produces 10 pips of profit every day is completely unrealistic.

The Solution

Let’s show you how to set performance targets that are achievable while taking risk into account. This can be applied to any trading strategy you want. To achieve this, you need to use 2 steps to track your performance. The first step should be your profit percentage. This will be the amount you aim to achieve each month. We recommend starting at some point between 5% and 10%.

This is a realistic expectation and has real value. You know exactly how much it should be equivalent to 5% – 10% based on the size of your account. If you just aim at 400 pips a month, for example, who knows how much each pip is worth? It could be $1 or it could be $10. Using a percentage of profit is setting a performance target with real value.

The second measure needs to take into account the risk. After all, 5% – 10% profit is great, but if you’re risking 20% to make it, that’s not good. For this measure we will use a multiple of “R”. What is this? you will wonder. Simply take your goal profit in pips and divide it by your stop loss also expressed in pips. For example, a target of 300 pips with a stop loss of 100 pips would be 3R.

So, the goal for your second measurement would be to maintain a minimum 2R average for the month. This forces you to look for favorable setups, in which the potential reward is at least twice as risky.

There you have it. Instead of aiming at an arbitrary number of pips per month, it aims at a profit between 5% and 10% per month, while maintaining a minimum average 2R. Now you have a goal that will produce profits while taking into account the risk taken to produce such profits.

That’s what it takes to be a consistently profitable trader.

Conclusion

At the end of the day, “10 pips a day” Forex scalping strategies are not the problem. At least they are not the root of the problem. The problem is the idea that the earnings in the forex market can be programmed into a calendar. Be it 10, 20, or 30 pips a day. The market does not care, nor will it move in a way that produces this kind of profit every day.

The other problem is risking 9 times the potential reward. Becoming profitable consistently is about putting yourself in favorable positions to make money. A setup where the potential loss is 9 times the size of the potential gain is the opposite of favorable.

You could say that this is just our opinion, and you’d be right. But when was the last time you heard a professional forex trader say he had enough surgery for today, because he had reached his goal of 10 pips? Do you think George Soros or Bill Lipschutz operate forex like this? Of course not. In fact here is a verbatim quote from Bill Lipschutz himself:

“For long-term operations, especially when multiple-option structures are at stake and some capital may need to be used, I look for a profit-on-loss ratio of at least 5 to 1.”

This article has not been written to imply that the only way to make a profit from forex is to use a minimum of 2R in each transaction. Or that price action is the only viable trading strategy. As we all know, that is simply not true.

However, this article brings to light that the idea of risking 90 pips to earn 10 and expecting the market to deliver those 10 pips of profit more than 90% of the time is unrealistic. We dare to say… impossible?

Categories
Beginners Forex Education Forex Basic Strategies

Simple FX Scalping Strategies to Put to the Test

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 […]

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 […]

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.

Bollinger Bands

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.

Categories
Beginners Forex Education Forex Trade Types

Let’s Discuss Forex Scalping Considerations

You may have been told in the past that trading is a game of probabilities, and this is true when aligning a lot of things into account, what it does not mean however is that placing a lot of small trades quickly will give you the probability of profits. Newer traders are now coming across […]

You may have been told in the past that trading is a game of probabilities, and this is true when aligning a lot of things into account, what it does not mean however is that placing a lot of small trades quickly will give you the probability of profits. Newer traders are now coming across […]

You may have been told in the past that trading is a game of probabilities, and this is true when aligning a lot of things into account, what it does not mean however is that placing a lot of small trades quickly will give you the probability of profits.

Newer traders are now coming across scalping, a method of looking to take just one or two pips out of the markets quickly, usually along some sort of trend or pullback, it can be a powerful strategy, and sometimes trades can stay open for a matter of seconds only. It can also make vast amounts of money, so why aren’t we all doing it? We aren’t all doing it because it takes patience, a lot of risk management and most importantly, it can go horribly, horribly wrong if you do not know what you are doing. So, let’s look at a few things you need to consider before you start scalp trading.

Costs

Each broker that you see will have its own payment structure, some of them have it as an additional spread on the trades, others will charge a commission. You need to know exactly how your broker will be adding these costs to your trade. Scalping is all about taking small profits from lots of trades, if your broker is adding an extra pip on top of the natural spreads and you take a 1 pip profit, then how exactly are you benefiting? In fact, you may be making a small loss, the same can go for commissions, if you are using a broker with an added $10 per lot traded, then it may not be worth it at all, however, if you commission of $2 per lot treaded then it may be far more valuable to scalp with them. Just remember t outlook at both the commission and the spreads, combine the costs to see whether or not it is worth scalping with that broker.

Capital Requirements

How much capital do you have? You find a broker that offers you an entry point of $10, it is fantastic that they are allowing you to open an account with such a small amount and this makes it very accessible. However, you will struggle to have any sort of risk management or money management plans in place with such a small amount. You cannot go into forex thinking you will turn that $10 into $1,000,000 with small trades. Not only will the profits be very small but you also need to think of the margin requirements of trading, you may get to a point where you cannot actually open any more trades due to your margin levels which can also result in blowing (losing all money in an account) an account.

Psychology issues

Traders who trade short term trades can often be under a lot more stress than those that go for longer trades, it is a much more fast-paced affair when scalping, having to quickly analyse, work out positions, place trades and then maintain them. Due to this, you need to ensure that your risk management is pretty solid and consistent before trading any real money, putting on these quick-fire trades can also result in more losses than you may see on a longer-term trading account, but that is a part of scalping, if you cannot handle them, you should not be attempting it.

Strategies

There are a number of different strategies for scalping, some are following trends, some are looking for breakouts, there are plenty of them out there. You need to get one that suits your own style and preferences. If you like trends, there is no point in trying to trade breakouts and vice versa. Finding the strategy along with the indicators that suit your own style is vital, no one has funt reading someone else’s’ strategy.

So those are a few of the considerations to take on board before you start scalping, there is no doubt that it can be profitable. In fact, it can be very profitable and satisfying as the trades are ina nd out quickly, but it takes a lot of practice and if the risk management in place is not solid and consistent, it can also be very expensive.

Categories
Beginners Forex Education Forex Basic Strategies

Anatomy of a Forex Scalping Strategy

Scalping is a type of trading strategy that revolves around profiting from many small price changes. A scalper focuses on making as many small profits as possible, rather than trying to win a large amount from a trade. Like every other strategy, the scalping method isn’t perfect. One of the strategy’s biggest downsides is that […]

Scalping is a type of trading strategy that revolves around profiting from many small price changes. A scalper focuses on making as many small profits as possible, rather than trying to win a large amount from a trade. Like every other strategy, the scalping method isn’t perfect. One of the strategy’s biggest downsides is that […]

Scalping is a type of trading strategy that revolves around profiting from many small price changes. A scalper focuses on making as many small profits as possible, rather than trying to win a large amount from a trade. Like every other strategy, the scalping method isn’t perfect. One of the strategy’s biggest downsides is that one large loss can wipe out all the smaller winnings that one worked so hard to make. Successful scalping involves having a higher number of winning trades versus losing ones, with the profit ratio equal to or higher than the losses.

Less market exposure limits one’s risks and reduces the chances that you’ll run into an unbecoming market event. There’s also more of a chance that a stock will move a few cents than there is that it will move a dollar or so. There are more opportunities for smaller moves than there are for larger ones and a good scalper can jump on these changes. These considerations make scalping a worthwhile strategy that can pay off. Of course, scalping involves making hundreds of trades, possibly per day. If you only have a limited amount of time to put into trading, this may not be the best method for you. Consider becoming a day trader or full-time trader if you’re ready to become a dedicated scalper.

Traders that don’t want to specialize in scalping may still find golden opportunities to use this strategy, like when the market is choppy or when there are no trends in the longer timeframe. Switching to a shorter timeframe can help one to see trends, so scalping can be beneficial here. There are several other ways that traders incorporate scalping into other, more long-term trading plans.

There are three main types of scalping strategies:

“Market making” is where the scalper tries to take advantage of the spread by putting out a bid and making an offer for a certain stock at the same time. This works best with immobile stocks that trade big volumes without any real price changes. It can be difficult to master this strategy as one would need to compete with market makers and the profit is small.

A trader purchases many shares and sells them for a very small gain on a price movement. The trader would wait for a move that is usually in cents and this requires entering and exiting 3,000 or more shares.

The more traditional strategy involves entering several shares and closing the position as soon as the first exit signal is generated. This would be around a 1:1 risk/reward ratio.

So, you may be asking yourself about the risks involved with scalping. One of the most crucial components of success involves having a strict exit strategy. If you don’t, then you’ll likely be one of those traders that loses all the money you worked hard to gain with one bad move. As we mentioned above, the “market-making” strategy can be difficult to pull off successfully, so it may be worth avoiding at first. Remember that scalping takes a lot of time and effort, as you’ll be glued to your computer screen making multiple small trades. You’ll need to be able to think and act quickly to master scalping successfully.

Tips

-Work with a direct-access broker for automatic instant order execution.

-Scalpers profit from the spread, so it is important to find a brokerage offering a tighter spread.

-Find a broker with competitive commission costs. Scalpers need to make many trades, potentially hundreds per day. Commission costs will add up quickly, especially unfavorable ones.

-Ensure your broker allows scalping and doesn’t impose restrictions that will hinder your strategy. Every broker isn’t scalper-friendly, but many are.

-It is important for scalpers to understand trading with the trend. Being able to identify a trend and momentum is important for successful scalping.

-You should be familiar with technical analysis, which involves looking at statistical data and charts.

-Most successful scalpers close out their trades at the end of the trading day and never carry them over to the next day.

Conclusion

Scalping can be a profitable trading strategy when it is used correctly, either as a primary or supplementary strategy. It does take a lot of time and dedication, along with a good understanding of trends, momentum, and technical analysis. If you’re a complete beginner, you’ll want to spend some time researching so that you understand these principals. It could also be a good idea for beginners to avoid the “market-making” strategy and to stick with the two more traditional scalping strategies. Scalping will likely continue to grow in popularity as many traders prefer the small profits in exchange for taking larger risks. This strategy isn’t for everyone, but it very well may be the key to success for those that understand how to do it effectively.

Categories
Beginners Forex Education Forex Money Management

Plan to Scalp Or Day Trade? Here’s What You Should Know…

The majority of new traders that are now starting out in trading are looking towards using either a scalping or day trading strategy. These sorts of strategies have been published a lot more than any others have and so people come in with the impression that they are the two go-to strategies to try out, after all, putting on multiple trades a day will increase your chances of winning rather than once every few days or one per week.

The majority of new traders that are now starting out in trading are looking towards using either a scalping or day trading strategy. These sorts of strategies have been published a lot more than any others have and so people come in with the impression that they are the two go-to strategies to try out, after all, putting on multiple trades a day will increase your chances of winning rather than once every few days or one per week.

The majority of new traders that are now starting out in trading are looking towards using either a scalping or day trading strategy. These sorts of strategies have been published a lot more than any others have and so people come in with the impression that they are the two go-to strategies to try out, after all, putting on multiple trades a day will increase your chances of winning rather than once every few days or one per week.

Trading shorter timeframes means that you can get in and out a lot quicker, make some profit, and then still have time for your social life or work, so it is far easier to fit it in around your everyday life and the other things that you are already doing. Unfortunately, it doesn’t always work like this, putting on more trades does not mean that you will be successful, especially if the work behind each trade has not been put in.

If you go to a shooting range if you take your time with each shot and only get three shots out, but they all hit the target. You would have done far better than you would have to unload a full automatic magazine of 20 bullets but didn’t bother actually aiming it. This is similar to how trading works, you need to carefully aim and analyse your trades, and not just simply quickly fire a load of trades out there in the hope that you will make some profits.

Having said that, these shorter-term trades certainly can be profitable and some people make a lot of money from them, it is just important that you are able to bring down your expectations and to ensure that you put proper trade management in place before making any trades. So we are going to look at some of the things to consider before you make the decision to trade in one of these styles.

Your Account Balance

Many people are now coming into trading thinking that they can turn $10 into $10,000 in a short period of time, this is not their fault, it is the fault of the thousands of people who exaggerate or outright lie about their results, bringing in more people who wish to emulate those results, even though we know it will never happen. So just because some brokers allow you to open up an account with just $10 it does not mean that you should. In fact, it has been recommended that you will need a balance of at least $1,000 if you wish to be successful. This is even more important if you are planning on using one of these quick-fix or multiple trade strategies, every single trade will reduce the leverage that you have available, too many open trades can cause an account to blow without even having traded in the negative, so be sure that you have enough capital to survive the strategy that you are planning to use.

Commissions and Transaction Costs

Traders are always going on about spreads, looking for the brokers with the lowest spreads because that will give you the most profit, the problem is that this is not the complete truth. Yes, lower spreads do mean that you make more per trade, but those brokers with very low spreads add a transaction cost otherwise known as a commission onto their trades. The standard commission going around is currently around $6 per lot traded, so to make our examples clear we will be trading 1 lot each time. So a broke with a low spread, let’s say 0 pips but has a commission of $6, a trader will see that they currently have a profit of $5 so it looks good, they close it expecting to make that $5, but then they are left with -$1, what happened The trader simply did not understand that a commission would come out once the trade closed. In terms of pips, there is no point having a strategy that takes 1 pip profit each time if there is a 1.2 pip spread, it just won’t make any money. So consider your broker’s charges and compare it with your strategy to ensure that you will actually make money on winning trade.

Different Strategies

There are a lot of different strategies out there, there will be some that suit your own style of trading and some that will certainly not. You need to be able to identify what your storing points are as well as your weak points and then take a strategy that best suits your own style of trading. The strategy also needs to be able to suit your psychology, if you are an impatient person, then there is no point in going for long trades. However, if you are someone with not a lot of time on their hands, the slightly longer-term day trades can allow you to put on a trade, go away and then come back later to update it. Just ensure that you are choosing a strategy that suits you and that it is one that you will be able to maintain over a longer period of time (we are looking at months to years).

Trading Psychology

We touched on this very briefly above, but trading psychology takes a big role when it comes to shorter-term trading styles such as scalping and day trading. The expectation from a lot of traders is that they will be able to come in and make some very quick and very easy money. This is the expectation that is being put out there by some brokers and a lot of scammers. This is just not the case when it comes to being successful at trading. There is a lot of money to be made, but it is the expectation and the pressure that people put on themselves to become profitable quickly that gets them into trouble. If you are trading a short term strategy like scalping, then you will do a lot of your trading in a short period of time, if you are easily distracted during that time then you will be destined to make mistakes and some losses, so prepare yourself, ensure that you understand what it is that you need to do and what your strategy requires of you. Focus on your trading and lower your expectations to be more in line with reality rather than your dreams.

So those are some of the things that you should consider when taking on one of the shorter term trading strategies. Of course, there are many other things and factors that have an effect, preparation is one of the key things as well as having an understanding of your own abilities and what the strategy actually requires and offers. Take your time to learn, take your time to master the strategy and you will put yourself in a fantastic spot for being successful in the future.

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Forex Basic Strategies

The Most Simple Yet Effective Scalping Strategies You Must Know In 2020

Introduction

Introduction

Introduction

The Forex market consists of are several types of traders. They are broadly classified based on the time frame traded. For example, swing traders use time frames like 1H or 4H, while positional traders analyze the 1D or 1W time frame. Similarly, there are “scalpers” who trade the 1-minute and the 5-minute time frames. Note that scalpers are different from day traders, as they do not consider the 15-minute or 1H time frame for their analysis.

What is Scalping in Forex?

Scalping is a type of real-time technical analysis, where traders make several trades in a small period. Scalping involves entering and exiting from the market within a few minutes and moving on with the subsequent trade. This type of traders aims for tiny profits rather than home runs.

Scalping is usually most popular among forex traders than those trading stocks and commodities. This is because the FX market is the most liquid and volatile market. Thus, traders make use of this benefit by extracting 10-20 from the market in a short time. Since scalping involves making of few pips on a trade, they are traded with big volumes.

Getting Started with Scalping in Forex

Now that we know the basics of Forex scalping, let’s discuss the analytical side of it and then understand some powerful scalping strategies as well.

Timeframe

The ideal time frame to the scalp is either 1-min or 5-mins. However, some traders get an outlook from the 15-min time frame too.

Take Profit and Stop Loss

The most critical part of scalping is to have a take profit and stop loss on every trade. Since you will be using the 1-min time frame, the profit or loss level should be within 5-10 pips. It is risky to keep the TP and SL greater than ten pips when the analysis is based on the 1-min time frame.

Volatility and Liquid

Volatility and liquidity are other vital points of consideration before scalping any market. Forex is indeed the best market to the scalp as it offers the needed volatility and liquidity. However, you must select the right pair to trade because not all currency pairs offer enough market volatility. There are pairs that barely move on the 1-min time frame, and thus traders must end up waiting several minutes on a trade. Hence, it is recommended to trade only major pairs and a few minor pairs.

Spread

Spread plays a major role in scalping as it greatly affects the P/L of the trade. For instance, let’s say the spread on EUR/USD is two pips. The pip value of the pair is $10. If one lot is traded, the expense of the trade would be $20. Now, if a trade yields you four pips, then the net profit would be $40 – $20 = $20. We infer that 50% of the profit gets deducted as a fee. Thus, scalpers always have an eye on the spread.

Forex Scalping Strategies

Scalping strategies are unlike strategies used by swing and positional traders. Scalpers do not wait for several confirmations before entering a trade. Instead, they aggressively enter after a couple of confirmations. Here are some scalping strategies made for non-conservative traders.

Scalping using Moving Average

This scalping strategy, two moving averages – the 5-period MA and the 20-period MA is used applied onto the 3-min charts. Let us understand the strategy with a couple of examples.

Firstly, we must have a look at the overall direction of the market. Note that this strategy is only for trending markets, not ranging markets. In the below chart of AUD/USD on the 3-minute time frame, we see that the market is in a clear downtrend.

Secondly, the five period MA must be below the 20-period MA. When the price action tries to break above five-period MA (yet below the 20-period MA) and falls back into MA, we can open short positions.

The stop-loss must be placed above the high of the candle that broke below five-period MA. One must exit the trade when the price reaches up to 1:1 risk-reward or at a profit of 5 pips.

Scalping using price-volume charts

Indicators are not a must to scalp in forex. Scalping is possible solely using price action concepts. And here is a strategy for the same. This strategy works on a small time frame used on any currency pair. However, we’ll be sticking to the 3-min time frame for all the strategies.

Below is the chart of AUD/USD on the 3-minute time frame. According to the strategy, we can take entry when the market breakthrough a range strongly with high volume. In the below example, we see that the price fiercely broke above the range with high volume too. This is a confirmation that the big buyer is back into the market. Thus, we can take a long position right after the candle closes above the range.

The stop-loss can be placed below the low of the candle that broke through the range and places the take profit at a 1RR ratio. Note that, the stop-loss and take profit must exceed above 10-12 pips.

Scalping using Support and Resistance

Scalping at support and resistance levels is the most popular technique in the forex industry. Yet most traders apply it illogically. Even though the textbook says to buy at the support and sell at resistance, it cannot be applied practically incorporated in the market as there is a pinch of psychology in it. According to this strategy, one must buy at support and sell at resistance only if there is a false breakout prior to it.

Consider the below chart of NZD/CAD on the 3-minute time frame. The gray ray represents the support level. It is seen that the price broke below the support thrice and came right back above it. Thus, one can enter when the price is holding above the resistance post the fake-out. The stop-loss and take-profit for all such trades much be a maximum of 5 pips.

We hope you found these strategies interesting and helpful. If you are an aggressive trader, do try them out and let us know the results in the comment section below.