Tag: Scalp Trading

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Forex Basic Strategies

Successfully Scalp Forex Pairs with these Two Tools

Introduction

Introduction

Introduction

Scalping is a short term trading style, and it is quite popular among professional Forex traders. This type of trading is more concise than day trading, which involves traders placing buy/sell orders throughout the trading day. But Scalping is different. Scalpers believe that making money from the small price action moves is easier than waiting for the considerable moves.

For scalping, our focus should be mostly on technical analysis rather than fundamentals.  By using technical analysis, traders use historical price information to predict the future price movement. To be successful in scalping, traders must have live feeds, direct access to the broker, and have the stamina & patience to sit in front of the computer and place as many trades as possible in smaller time frames to make money.

Scalping typically requires smaller timeframes such as a 5-minute, 15-minute, or even 1-minute charts. Some traders also use the tick chart or 30-seconds chart to scalp the Forex market. However, it requires an advanced skill set to be successful at this because the lower the timeframe is, the faster it moves. In this article, Let’s learn how to scalp the 1-minute Forex charts using Pin bars and Trend lines.

Pin Bars

Pin Bar is a candlestick pattern that consists of only one candle, which represents a sharp reversal. There are two types of Pin Bar.

  1. The Bullish Pin Bar’s closing price is higher than the candle’s opening price, and the candle’s wick must be two to three times longer than the real body.
  2. The Bearish Pin Bar’s closing price is lower than the candle’s opening price, and the tail of the candle must be two to three times longer than the real body.

Trend Lines

Trend lines act as an essential tool for analysts while performing technical analysis. These lines are a visual representation of support and resistance levels in any trading timeframe. Traders apply these trend lines on the price charts to get a clear picture of the ongoing trend to make an accurate trading decision. Also, the trend lines on the highs and lows of the price chart create a channel.

Trading Strategy – Pin Bars + Trendlines

The one-minute trading timeframe volatiles a lot, and this small timeframe never moves in a single trend. We will always see the transitions from buy trend to sell and sell trend to buy in less than a couple of minutes. This is the essence of trading the lower timeframes. Therefore, before trading the one-minute timeframe, it is advisable to let go of all of your rigid trading beliefs.

Most of the scalpers fall into their ego and deny to close their losing positions. If you fall into this trap, then scalping is not for you. You must have a strong mindset and follow the rules like world-class traders to scalp the Forex market successfully.

Buy Examples

As you can see in the below image of the GBP/CHF Forex pair, the price was in an uptrend. Whenever the price approached the trend line, buyers immediately came back and printed a Pin bar candle, which is an indication to go long.

In this example, the market gives us three buying opportunities, and all the three trades performed well. When you take an entry at the pin bar formation, and the very next candle goes against you and closes below the pin bar, it is an indication for you to close your positions and wait for the next signal. On a one-minute time frame, always go for 2-3 pip stop loss and 6-7 pip targets only.

Below is another buying example in the GBP/AUD Forex pair. Here, the market gave us only one trading opportunity. As the price chart implies, the buyers were in complete control, and the price action is moving calmly. This means that there is a very less chance of spikes or fake outs. It is always advisable to find the less volatile currencies and try not to scalp the opening hours of the market.

Sell Examples

In the below USD/CHF 1-minute Forex chart, the overall trend was down. We can see the price printing the pin bars twice in a downtrend, which indicates us to go short. There are various ways to close your positions. We can choose any significant support/resistance area to book profit or close our positions when the price action starts to lose its momentum.

Some scalpers prefer to ride longer moves based on the market circumstances, while some like to close their positions after making 5 to 6 pips. So exiting completely depends on your trading style.

Below is another selling example of this strategy in the USD/CHF Forex pair. When price approached the trend line in a downtrend, we can see the market printing Pin Bars. This shows that the price action is ready to print brand new lower lows. Activate your trade when the market gives both the signals. In healthy market conditions, expect brand new lower lows or higher highs, and please avoid trading choppy market conditions.

Conclusion

Scalping proved to be a great way to make profits in a very short time. Make sure to understand that it requires a lot of hard work, patience, and dedication to master trading the lower timeframes. The more the trades you get into, the more the amount of money you will make. Scalping can be very difficult in the beginning, but with some practice and a right strategy, you will get the hang of it.

It is hard to scalp the 1-minute chart by using price action alone. Most of the highly successful scalpers use some indicators and candlestick patterns to confirm the market trend. Using the pin bars and trend lines on the 1-minute chart will help you filter out the bad trading signals, and this will drastically enhance the odds of your trades. Cheers!

Categories
Forex Basic Strategies

Learning To Trade The GBP/JPY Pair Using The ‘Guppy Burst’ Strategy

Introduction

Introduction

Introduction

After discussing some of the intraday and long-term trading techniques, we will now focus on very mechanical trading strategies. The strategies discussed previously were time-driven, which means each strategy involved several parameters.

This style of trading is suited to newbies because it is purely based on a fixed set of rules and steps. Due to its non-dependence on rules specific time frames, the strategies we will be discussing span over three different categories: scalping, day trading, and position trading.

The first strategy is the guppy burst strategy, which is based on the 5-minute chart. The second strategy is English Breakfast Tea, which is based on the 15 minutes chart, and the third strategy we will talk about is the good morning Asia strategy, which is based on the daily chart.

The guppy burst strategy seeks to exploit trading profits when the market is quiet. One would have observed that the market is least volatile after the U.S. market’s close until the Asian market opens. The forex market is quiet during this time and tends to move gently. However, the market movement during this time is fairly predictable. The market again momentum after the Asian market opens.

Time Frame

The guppy burst strategy works well on the 5-minute time frame. This means each candle represents 5 minutes of price movement.

Indicators

This strategy is based on pure price action; hence, no indicators are required for this strategy.

Currency Pairs

This strategy applies only to the GBP/JPY currency pair.

Strategy Concept

Firstly, we identify a ‘range’ during the window of three hours between the close of the U.S. market and the opening of the Asian market. We are also taking advantage of the volatility that is witnessed when the opening of the Asian market is nearing. We will place a pending buy order at the range’s resistance with a stop loss at the support.

Similarly, we will place a pending sell order at the support of the range with a stop loss at the resistance. This might appear opposite for some traders who are well versed with the support and resistance strategy. The reason behind buying at resistance and selling at support is that, as soon as the Asian market opens, the market starts to trend in the same direction of the current move. This means we are anticipating a breakout or a breakdown of the range.

We will have two take-profit points in this strategy. The first profit target is set at risk to reward ratio of 1:1.5, while the second one is at 1:2 risk to reward. By this, we ensure that we lock in some profits and don’t lose when the trade goes against our favor.

Trade Setup

Since the time zone of the trade very important here, we need to mark the reference candle for the strategy. It is the one that corresponds to 5 PM New York time, which is nothing but the closing time of the U.S. market. As mentioned earlier, the strategy is applicable only to the GBP/JPY currency pair. Here are the steps of the guppy burst strategy.

Step 1

The first step is to open the chart of the GBP/JPY currency pair and then wait for the U.S. market to close. Mark this as the reference candle, and from here, the analysis of the chart begins. We need to analyze the pair on the 5 minutes candlestick chart. The below image shows an example of such a trade setup on the GBP/JPY pair. Here we see that the market is an uptrend and recently has formed a range.

Step 2

Next, we need to identify a ‘range’ where we have at least two points of support and resistance. We have to assure that the market does not start moving in a single direction after the U.S. market closes. If it does, then the strategy is no longer valid. However, the market mostly remains sideways after the U.S. session. Depending on the market’s major trend, we place a limit order at support and resistance. If the major trend of the market is up, we place the ‘buy’ limit at the resistance, and if the major trend is down, we place the ‘sell’ limit at the support.

Step 3

In this step, we do not have to do anything, but just wait for the market to hit our limit orders. At the same time, if our limit order is not triggered, we should leave the market as it is and not chase it. This is an important part of risk management.

In the below image, we see that our ‘buy’ order gets triggered a few minutes after the opening of the Asian market.

Step 4

As mentioned earlier, we have two ‘take-profit’ points for the strategy. The stop-loss placed at support if going ‘long’ in the market and at resistance if going ‘short.’ The first ‘take-profit’ is set at a point where the resultant risk to reward of the trade is 1:1.5. The second ‘take-profit’ is set at 1:2 risk to reward. We lock in some profits at the first profit target, which ensures that we don’t lose money even if the market turns around.

The below image shows how the market continues to move upwards and starts trending after the breakout from the range.

Strategy Roundup

As we are not sure when the breakout will happen, the best way to enter the market is by creating a pending order on the extreme ends of the range. The important part is the identification of the range during the three-hour window between the U.S. market close and Asia market open. Along with that, make sure to place a limit order in the direction of the market.

Categories
Forex Basic Strategies

Pro Scalping Technique By Combining Stochastic With Bollinger Bands

Introduction

Introduction

Introduction

Scalping is a trading strategy that helps traders to take advantage of minor price movements on lower timeframes. It is one of the quite popular ways of trading the Forex market. There are many successful scalpers who make a lot of money by scalping the minor price moves. To be a scalper, we must be emotionally intelligent and have the ability to make quick decisions.

Scalpers place anywhere from 0 to a few hundred trades in a single day. Ideally, smaller movements in price are easier to catch compared to the longer moves. Typically while day trading, if the win/loss ratio is less than 50 percent, traders still make money. On the other hand, in scalping, it is critical to win most of the trades. Otherwise, we will end up on the losing side.

Stochastic Oscillator

Stochastic is a wonderful indicator developed by George C. Lane in late 1950. This indicator doesn’t follow the price or volume like other popular indicators in the market.  Instead, it follows the speed and momentum of the changes that occur in price before the trend formation. Stochastic is a range bounded indicator, and it oscillates between the 0 and 100 levels.

Typically, a reading above 80-level is referred to as the overbought signal, and a reading below the 20-level indicates an oversold signal. The Stochastic indicator consists of two lines, where one reflects the actual value of the indicator for each session, and another reflects its three-day simple moving average. The intersection of these lines indicates the reversal in price action.

Bollinger Bands

Bollinger Bands is a technical indicator developed by John Bollinger in the 1980s. It is a leading indicator, and it consists of two bands and a centerline. Out of the two bands, one stays above the price action, and the other stays below. Both of these bands contract and expand depending on the market’s volatility. When price action hits the lower band, it indicates a buy trade, and when it hits the upper band, it indicates a sell trade.

The Strategy

The strategy we are going to discuss is one of the most basic but effective scalping strategies ever used in the market. The idea is to apply both indicators (Bollinger Band & Stochastic) on the price chart. When the price action hits the lower Bollinger band, and the Stochastic is at the oversold area, it is an indication for us to go long. Conversely, when the price action hits the upper Bollinger band and if the Stochastic is at the overbought area, we can go short.

In the chart below, we can see that our strategy has generated a few buy/sell signals in the EUR/AUD Forex pair. The price action was in an overall uptrend. When both of the indicators gave us the signal, we took both buy and sell entries accordingly. In the chart below, the buy trades have given us some good profits, but in the sell trades, the profit was comparatively less. Always remember that these things are quite common in scalping. If you are an aggressive scalper, trade both buy sell signals. But if you are a trader who prefers to scalp the market with the trend, follow the next strategy.

Scalping The Market By Following The Trend

Buy Example

The chart below represents an uptrend in the EUR/AUD Forex pair. As you can see, by following our strategy, this pair has given us three buy signals, and all the trades were quite healthy and have performed well in the market. If you scalp the market by following the trend, it is easy to make big gains. For scalping, it is required to put smaller stops. Hence, always go for 4 to 5 pip stop-loss and 10 to 15 pip target. You can also exit your positions when the price hits the upper Bollinger band.

Sell Example

The below 3-minute chart of the GBP/JPY forex pair represents a couple of sell trades. As you can see, all the sell trades in this pair performed very well. We can also observe that every time the price action prints a brand new lower low. We took all the five selling trades on a single trading day, an all of them hit the take-profit range. So if we scalp the market by following the trend, it will be quite easy to make some profits from the market. The red arrows on the Stochastic and Bollinger Band indicators represent the sell signals.

Scalping The Ranges

Just like the trends, it is easy to scalp the ranges as well. In fact, the ranges are even easier to scalp than the trend because the support and resistance lines of the range offer extra signals for us. For ranges, all you need to do is to hit the sell when price action hits the top of the range and hit buy when prices hit the range bottom. If you add the Bollinger Bands and Stochastic indicator, the signals generated by the market will be stronger.

The chart below indicates a couple of buy/sell signals in the GBP/JPY 3-minute Forex chart. As you can see, we have gone long when prices hit the bottom of the range, combined with our strategy. The same applies to the sell-side. We have gone short when the price action hits the top of the range while respecting our strategy rules.

Conclusion

Scalping trading involves entering a trade for a shorter period of time to take advantage of small price fluctuations. When you enter a trade, it is advisable to risk lesser money and place as many trades as you can. We must have control over our inner greed and aim for smaller targets. In the beginning, it will be difficult for you to scalp the market as the smaller timeframes move way faster. You need to train your eyes a bit to understand the lower timeframes properly. Always try to scalp with a bigger trading account because the trading commissions can quickly eat up the smaller accounts.