There are many different techniques that traders use to favorably predict market movement, allowing them to enter the market at the appropriate times. To be a successful scalper, orders need to be well researched and placed quickly, following strategies similar to those mentioned below.
Our forex trading strategy article seeks to arm you with enough knowledge to understand the intricacies of the forex market trading and how best to profit from it. We offer you a deeper understanding of what forex scalping really is, as well as looking at some of the best tips to prepare you for a profitable scalping day.
What is scalping?
Daily forex trading requires dedicated market research, an understanding of how and why market movement occurs, as well as nerves of steel. Traders looking to bust the market will need to increase their awareness and hope their nerves can hold up as they move their trading activity to lively one-minute charts or ticks, as opposed to five-minute charts and beyond.
As a scalper, you will be in and out of positions within the same trading session. Never leave a position open overnight or at your next session. During your trading session, you may be looking to trade BTCUSD or XAUUSD, but very rarely would you open more than two or three trade positions a day. On the other hand, Scalping is a much more active way to trade, opening and closing a variety of positions in various markets or potentially within the same market, at various times of the day.
As mentioned above, those looking to bust the markets will need to have a solid understanding of how, what, and why market movement occurs. Some scalpers rely on news and economic events to predict chart movement. For example, the monthly NFP news release could cause the USD pairs to shift in a particular direction. An unwritten rule about trading forex is to use the five and ten pip closes. By this, we mean that scalpers are looking to profit between five and ten pips per trade before closing a position, repeating this throughout the day.
More experienced scalpers will be familiar with using high leverage to improve your chances of a healthier return. Naturally, this also carries increased risk, reinforcing the importance of following your trades carefully or placing stop loss on all your orders.
Before we take a look at the best scalping strategy, we want to offer you our top tips to jump-start your trading career.
Choosing the right broker
As a trader, it is imperative that you select the right broker for your trading habits and requirements. As a scalper, you will not only want the most secure platform, but you will also need to understand how your broker operates in terms of margin requirements and, in particular, the site’s use of margin calls. Some brokers will automatically close all active positions if your account falls into a negative balance unless it is registered in their professional accounts.
Understand your markets and prepare your charts
Our next top tip ties into understanding your platform very well – prepare your charts before you begin. Most high-end platforms will allow numerous charts to be opened at the same time, allowing users to easily navigate their desired markets.
A good trick is to open a chart in two or three time frames, which gives you a bigger picture of the current price movement. For example, if you want to trade EURUSD, GBPUSD or USDJPY, we recommend setting up the thirty or ten minute chart, as well as your tick or one minute chart, to better understand current trends.
As we keep mentioning, scalping for trades requires a certain level of knowledge and temperament. The perfect balance between risk taking and market analysis could earn users great rewards. However, this style of negotiation is exhausting. Sitting in front of your screen, constantly analyzing, plotting, on the verge of waiting to take a trade at the perfect and opportune moment. The complexities of time are going to be critical when it comes to collecting your pips, and being indecisive will cost you in the long run.
The next section seeks to reinforce your understanding of forex scalping strategies by offering three of our favorite techniques on the best way to scalp the markets, including a brief description of each. We recommend testing each strategy using your demo account, using real-time markets under test conditions to help establish your most profitable and reliable method.
Stochastic and trend lines
Keeping on the trend theme, our next scalping strategy focuses on the stochastic indicator and trend lines. For this strategy to work to full effect, you will need to follow a chart that is trending up or down. If you are following matchmaking within a variable market, this strategy can still be used, but it will be more difficult to use.
When planning your entry points, you will first need to draw a trend line on your chosen chart, looking for where the trend line is located or intersected. These is where you get your entries. You will then need to look for an overbought or underbought condition within the trend, watch the stochastic, and use your findings to enter or exit price reversals. A useful note to keep in mind when reviewing Stochastic: if it is above 80, it is oversold and below 20 it is underbought.
Dynamic support and resistance.
Support and resistance are constantly changing based on market movement. As a general rule of thumb, three or more points create a support or resistance line. Whereas static support and resistance levels are taken at the beginning of the day, focusing on the highest and lowest points, and must be identified before you can start trading. When plotting dynamic and static support levels, keep an eye out for when they meet as these will be your key entry points.
Often times, traders will use more than one strategy to further consolidate their findings. However, due to the fast nature of trading, it is best to test your strategies separately and use the method with the most favorable results. Remember to keep calm and to always go for a risk reward of more than 1:1.5 to ensure at the end of it all you are profitable.