Tag: Scalping Strategy

Categories
Forex Trading Strategies

Scalping Strategies In Detail: How to Choose Assets, Instructions, and More

There’s so much to know about scalping strategies. Scalping can provide fast, unlimited profits, but does come with risk. Knowing how to choose the instrument of negotiation is a matter of utmost importance, not only for a scalper, but in the life of a scalper there is the situation of fighting for every point of […]

There’s so much to know about scalping strategies. Scalping can provide fast, unlimited profits, but does come with risk. Knowing how to choose the instrument of negotiation is a matter of utmost importance, not only for a scalper, but in the life of a scalper there is the situation of fighting for every point of […]

There’s so much to know about scalping strategies. Scalping can provide fast, unlimited profits, but does come with risk. Knowing how to choose the instrument of negotiation is a matter of utmost importance, not only for a scalper, but in the life of a scalper there is the situation of fighting for every point of profit, and a sudden change in prices can lead to a significant loss.

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: GBP/USD, EUR/USD. To be able to compare the differentials of the different currency pairs that the broker offers us, we can make the data useful 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). For this reason, depending on the time, different 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: Examples

The use of scalping on Forex means that a Forex trader is under an “obligation” to monitor intensively 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 experiment by adding something of your own, create something of your own, unique based on this basis!

How to Install Scalping Strategy Patterns on MT4: The trading systems described below mean that using combined indicators that are not included in MT4 and other platforms as standards. These indicators are loaded and you can find them in the “Custom Indicators” tab, the loaded pattern is located in the “Graphics / Patterns” tab. Depending on the type of operating system, folder names may differ. 

Classic Scalping 

This strategy is based on very basic technical tools, are 4, and are combined in a pattern: two simple moving averages, RSI and MACD. The strategy is classic, based on the principle: “Don’t reinvent the wheel, learn to feel the market”. The recommended time frame is M5. The 1-minute interval will send many false signals, but you can try looking for signals in non-standard time frames of 5 to 15 minutes. Recommended pairs: EUR/JPY, EUR/GBP: are the most effective trading signals for them.

Advantage of Beginner Strategy: Train standard indicator application skills, improve your attention (looking for multiple conditions that are met at the same time).

Configuration of the indicators:

  1. МАCD: MACD SMA (9), lento ЕМА (26), Fast ЕМА (12), applies to Close.
  2. RSI: Period (26). Base levels can be maintained: (50). Apply to Close.
  3. EМА (Exponential Moving Average): Period (20), Apply to Close. Change 0
  4. LWМА (linearly weighted ), is a moving average: Period (10), Apply to Close. Change 0

The best time for currency scalping is the European session, at this time these pairs are trading more actively, so the liquidity in the market is the highest.

Conditions for opening to a long position:

  1. МACD has been below zero level for some time, then draw a graph above zero.
  2. RSI in the same range of sails penetrates level 50 from the bottom up.
  3. LWМА (orange line) is above EMA (blue line). The perfect condition is when LWMА in the same interval penetrates EMA from the bottom up.

The trade will open in the next candle after the main condition is met, MACD intersection at level zero. The rest of the signals in this case are confirmation signals, but you should not enter an operation unless all conditions are met. We place a stop at the level of 5 points (you can a little more, depending on volatility). The estimated earnings are 5 points regardless of spread coverage. By reaching the target, the transaction can be secured by trailing or closing. The second option is more acceptable. During the release of important news, this strategy does not work.

Conditions for opening a short position:

  1. МACD has been above zero for some time, and then draws a graph below zero.
  2. RSI in the same range of sails penetrates level 50 from top to bottom.
  3. LWМА, represented by an orange line, is below the EMA, represented by a blue line. A perfect choice would be if LWMA in the same range penetrates EMA from top to bottom.

Market entry is similar: as soon as the MACD penetrates level zero, an operation can be opened.

You shouldn’t have a big win. The strategy suggests winning just a few points. Signals appear almost every day, so you can not limit more than one or two currency pairs. If you have managed to resume the beginning of the trend, you can increase the size of the target benefit.

Credit: Investopedia

Scalping In A Saturated Market

This scalping strategy aims to resume the moment of maximum saturation of the market. That is such a state when the trend is already ending and there is an inertial movement of price just before the reversal.

The strategy uses the Laguerre Volume indicator, which helps you identify the moment of saturation of the market volume. Its developer, John Ehlers, originally worked with equipment designed for space signal processing in the 1970s. As he was a proponent of cycle theory, the indicator was developed on the basis of this theory. It was eventually modified by a French mathematician Laguerre.

The indicator is efficient for signaling the start and end of micro-trends. I’m not suggesting you try to understand the indicator’s calculation formula unless you are an expert in mathematics and programming. Just download your ready pattern here. This strategy will suit perfectly those who are just starting scalping, as the M15 time frame allows you to estimate the signal without haste and gives you more time to make a decision. The currency pair is USD/CAD, traded when the market operates unchanged after saturation.

Advantage of the beginner strategy: it is a simple strategy that does not require high concentration and emotional stress on the part of a trader.

Laguerre Volume configurations: gamma = 0.618, the number of bars analyzed = 5000, Levels: 1; 0.75; 0.5; 0.25; 0. The gamma value is used to calculate the indicator levels. The higher the value, the smoother the line will be. The value of 0.618 in this case is the optimal balance between smoothing and lag.

Conditions for opening to a long position:

  1. Trading takes place during the night period of the flat from 00:00 to 07:00 ЕЕТ. After active trading during the European session, there is the attenuation phase with inertial price movements.
  2. Laguerre Volume first crosses level zero and then reaches level 1.
  3. During the increase of the indicator to level 1, there is an increasing candle with the body that is not less than 3 points.
  4. You can enter an operation in the next candle by covering it with a stop loss at a distance of 8-10 points. The target profit is 5 points, after that, you can completely close the position or part of it, moving the stop to the entry-level or leaving the position open by protecting it with a trailing stop.

Conditions for opening a short position:

  1. Trading takes place from 00:00 to 07:00 ЕЕТ.
  2. Laguerre Volume first crosses level zero and then reaches level 1.
  3. During the increase of the indicator to level 1, there is a candle that falls with the body that is not less than 3 points.
  4. The principle of opening the transaction is similar.

Laguerre volume does not always increase in the interval from 0 to 1 ideally straight. Sometimes, there are setbacks, and then, it resumes by rising. That is why, if the indicator reaches, for example, the level 0.9 and is reversed, it is better not to open a transaction. The straighter the indicator’s path to target level 1, the more accurate the signal is. You should not open an operation if the indicator tests the level twice, as shown in the figure above. You can test the strategy in pairs, including Australian and New Zealand dollars, other currency pairs should not be traded with this strategy.

“Scalping by Trend” Strategy

Unlike other trading systems, this trading approach suggests entering a number of trades at the beginning of the trend. In theory, one could put a single input and maintain it until the trend is reversed, but scalping also involves taking profits from setbacks/corrections. And also, this strategy will allow you to win money with short trends.

The strategy uses the following indicators: Classic Stochastic and Awesome Oscillator (Awesome Oscillator)», learn more about the principle of calculation and application here. Two moving averages analyze the trend line in the one-hour time frame.

Advantage of the beginner strategy: it is a good example of how you can make money with scalping additionally using a longer time frame. The pair will be GBPUSD, the main trading interval is M5, the auxiliary is H1. Trading takes place in the European session. 

Configuration of the indicators:

  1. Awesome Oscillator: all settings are default.
  2. SMA 1: Period 50, represented by a red line, is applicable to close.
  3. SMA 2: Period 200, represented by a blue line, is also applicable to close.
  4. Stochastic: %К – 14, %D – 7, Slowing down – 7, Sliding method – Simple, Levels – 20 and 80 (basic).

Conditions for opening to a long position:

  1. Chart analysis with time frame H1. The direction of both slides: up. The red slip should be above the blue.
  2. Analysis of the graph with time frame M5. Stochastic is in an area that we call oversold, this happens when it is between levels 0 and 20, and in the signal, candle leaves it. Awesome Oscillator draws a column of green, always below level 0.
  3. The more vertically the stochastic exits the oversold zone, the more accurate the signal is. After all, conditions match in the next candle, you can open a transaction. The target benefit is 10-15 points, the stop can be placed the same or a little more.

Conditions for opening a short position:

  1. Chart analysis with time frame H1. The direction of both slides: downward. The red slip should be below the blue.
  2. Analysis of the chart with time frame M5. Stochastic will be in the area we call overbought when it is between levels 80 to 100, and in the signal, a candle comes out of it. Awesome Oscillator always draws a column of red above level 0.
  3. The condition of opening the transaction is similar. If the trend is constant, you can open a series of transactions.

Scalping By Levels

Level trading suggests two scenarios: breaking the channel limit with the start of the new trend or rebounding from the limit (support/resistance level) and returning to the middle of the channel, that is, to the equilibrium level. This is a perfect scenario. In reality, everything we have set out here may be something different:

The channel boundary break may be an inertial price movement and may not start a new trend, the price may return to the channel after a brief movement.

Movement within the channel can also be chaotic. After a rebound from the limit, the price fails to reach the mean (let alone the opposite limit) and is reversed.

For an intraday channel strategy, these are all risks. But not for the scalping that allows you to make profits both from the channel break and from price swings within the channel. The psychological levels, in this case, serve as an objective reference that helps you to assume at least approximately the potential reversal points within the channel.

The strategy suggests building a “Slip Envelope” where the price will return. Stochastic will identify the probability of channel boundary break, internal levels are created based on Fibonacci levels. Stochastic in this case will be a complementary tool, moving averages and levels with coefficients of 61.8; 161.8; 261.8; 361.8 are combined in a single MavEn indicator, which you can download through this link. The moving averages in the indicator are constructed by adding 3 LWMA with periods (30, 50, 100), which shall be weighted by the closing price.

Advantage of beginner strategy: an excellent combination of scalping and channel strategy.

Time Frame – М5 (5 minutes), torque – EUR/USD. MavEn configuration unchanged. Stochastic configurations: %К – 14, %D – 3, Slowing down – 3, Prices – Low/High, Sliding method – Simple. The levels are standard (20, 80).

Conditions for opening a long position:

  1. The candle closes below the red line.
  2. Whenever we find the price below the red line, the oscillator drops to the oversold zone (below level 20).
  3. Both the price and the stochastic must be below the red line for more than 10 candles.
  4. The price goes up above the red line.
  5. After the candle closes above the red line, we open an operation with a stop at a distance of about 10 points. We leave the market when the orange line is reached (Fibonacci level 61.8).

Conditions for opening a short position:

  1. The candle closes above the red line.
  2. While the price is above the red line, the oscillator goes up to the overbought zone (above level 80).
  3. Both the price and the stochastic must be above the red line for more than 10 candles.
  4. The price drops below the red line.

The conditions for exit from the market are similar. Other lines are auxiliary, but, if they begin to indicate a reversal and the profit has already covered the spread, we close the deal and wait when the price exceeds the limit for the next time. If the price for a long time is between the red and blue lines (8-10 candles and more) or outside the red line, we do not enter the market.

Categories
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 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.

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Forex Course

83. Learning To Trade The Donchain Channel Indicator

Introduction

Introduction

Introduction

The Donchain channel indicator is one of the quite popular technical indicators in the market. It is developed by Richard Donchian in the mid-twentieth century. This indicator consists of three moving average lines calculated by the highest high and lowest low of the last ‘n’ period. The upper Donchian band marks the highest price of the security over the ‘n’ period of time, whereas the lower band of the indicator marks the lowest price of a security over the “n” period of time. The area between the upper and lower band represents the Donchian channel.

If the price action is stable, the Donchian channel stays in a narrow range, and in volatile market conditions, the Donchian channel indicator will be wider. In this way, the Donchian channel is a wonderful indicator to assess the volatility of the market. The upper Donchian band indicates the extent of bullish energy, highlighting the price action achieved a new high in a particular period. Whereas the centerline of the indicator identifies the mean reversion price for a particular period. The bottom line identifies the extent of bearish energy, highlighting the lowest price achieved by the sellers in a fight with the buyers.

Below is how the price chart looks once the Donchain Channel indicator is plotted on to it.

Trading Strategies Using The Donchain Channel Indicator

Scalping Strategy

This strategy is made for traders who prefer to make quick bucks from the market. By following this strategy, we can get a couple of trades in a single trading session. The idea is to go long when the price action hits the lower band and go short when the price hit the upper band. The preferred time frame will be a 5- or 3-minute chart.

The image above represents a couple of buying and selling trading opportunities. Scalping is the easiest way to make quick bucks from the market. When we take a buy or sell trade, and if the price action goes five pip against your entry, we suggest you close the trade and wait for the price action to give another trading opportunity. Book the profit when price action hits the opposite band of the indicator.

Donchain Channel To Trade The Trending Market

If the market is in an uptrend, it is advisable to go only for the buy trades, and if it is in a downtrend, only go for sell trades. In this way, we can filter out false trading opportunities, and by following the trend, we can easily hold our position for longer targets.

Buy Trade

The below image represents two buying opportunities that we have identified in the EUR/NZD pair. We can see that the trend was up, and if we take any of those small sell trades, we will end up on the losing side. So on a higher timeframe, it is advisable to trade with the trend. We have captured the whole buying movement in this Forex pair. This is the easiest and safest way to trade the market using this indicator

Sell Trade

The below image represents a couple of selling opportunities in the CAD/JPY Forex pair. We can scale our positions when the market gives an opportunity to do so. Or, we can close our positions when the opposite signal is triggered. Always wait for the desired signal with patience to trade the market.

The advantage of trading with the trend is that whenever the market gives us the trading opportunity, we can easily hit the trade without worrying much. Another advantage of trading with the trend is that we can go with a smaller stop-loss as the price action spikes very less in a trending market.

These are only a few applications of the Donchain Channel Indicator. You can follow our strategy section to learn many advanced applications of this indicator. Stay tuned to learn many more technical indicators. Cheers!

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