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How To Make It Easy? - Forex Scalping Strategy
- Thread starter skrimon
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Jason
Administrator
Trading Styles: Scalping, the aggressive day trader
What is scalping?
Scalping is considered a very short-term aggressive form of trading financial markets. Trades generally run from over a few moments to a few minutes. Much like day trading (a category within which scalping falls), this approach sees traders not holding their positions overnight.
Position / lot sizes
Position or lot sizes for trades are generally larger to maximize small movements in markets.
Scalpers are concerned with taking small but frequent profits out of the marketplace. The view here is that smaller moves are also more frequent than larger ones.
Time frames
Time frames for traders using a 'scalping' approach are generally very short and can range from a tick chart up to a 5min chart. Larger times frames can be used for general analysis i.e., key trends and price levels, although execution triggers are most often considered on the aforementioned shorter time frames.
Suitable markets
Because this style of trading sees frequent transactions being placed and smaller point or percentage movements being targeted, traders who are looking to scalp the market might prefer lower cost higher leveraged and very liquid markets.
Indices and forex trading pairs often fit this criteria with a number of brokers only charging small spreads. These markets are also associated with having higher leverage (the degree which profits, or losses are magnified) and higher liquidity.
Leveraged equity markets (i.e., CFDs / Futures etc.) are also candidates for scalping, provided that the shares selected are highly liquid. However, it should be considered that these products generally carry a higher associated cost, due to usually having an inherent market spread as well as commission charge.
Scalping market strategies
This trading style is concerned with short term bouts of volatility and movement. The idea is often to catch a piece of a short term bullish or bearish momentum in markets. In turn this approach can look at trading over news flow and economic events as well as capitalizing from bouts of short-term volatility.
Scalping news flow
For example, key economic events create short term market sentiment and direction. An economic calendar therefore becomes an important tool. A simple approach to scalping the markets could be diarizing the time and date of important data i.e., GDP, Employment, and inflation data. There is always a consensus expectation of outcomes for economic data points. When the actual data is released the general rule of thumb is that better than expected, it is positive for the market concerned, worse than expected is negative for the market concerned.
The above graph highlights a short term move lower on the SP500 following the release of US retail sales data which fell short of estimates. News data with the estimates can be plotted on the IG charts as above.
Scalping volatility movements
Volatility indicators such as average true range (ATR) and Bollinger Bands can assist this short-term trading format. A sharp rise in the ATR or widening of the Bollinger Bands can highlight a short-term directional momentum in markets and quick opportunity to gather a few points.
The below chart illustrates how when the distance between the upper and lower Bollinger band is narrow, volatility is relatively muted. Scalpers in the market might use a sharp widening of the distance of these bands and breakout (price move above upper or below lower Bollinger Band) to trigger a short-term trade.
Hit rate and risk to reward
Scalping requires traders to a have higher hit rate, meaning that the frequency with which you are right needs to be significantly higher than the frequency with which you are wrong. This is due to the fact that you are not riding out winning trades but rather banking only a few points when you are right.
A trader adopting this aggressive trading style might look to risk one or two points for a reward of one point. If your risk to reward (R:R) assumption is 2:1, a trader will need to be right two out of every three trades just to break even. Therefore, a hit rate of more than 67% may be required for profitability.
Other trading systems, such as trend following techniques might find the inverse R:R assumptions i.e. 1:2 or 1:3. This is because here the objective is to ride out winning trades and keep losses small. However, the hit rate is often considerably lower.
In summary:
- Scalping is considered a very short-term aggressive form of trading financial markets
- Trades will run over a few second to minutes
- Position sizes are often larger in an attempt to magnify smaller moves
- Highly liquid markets with lower costs are generally considered more suitable to this trading style
- News flow and volatility breakout are often used as tool for scalping markets
- This trading style requires a higher hit rate as traders could be risking more on losses than achieving on gains
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@MarnieLarge I agree. Scalping can be profitable, but at the same time, it is very risky. If you don't have good risk management and a quick exit strategy, then scalping isn't good for you. Scalpers should also be aware of different types of indicators that traders use to predict the price movement. RSI, ATR, Moving Averages are some of the trading indicators that a scalper should know.
True! Scalping is indeed risky but a potential earning trading strategy. To scalp successfully, a trader needs to be really quick in making trading decisions and needs to have good trading psychology.
WalletInvestor
Well-known member
These are good tips, but I think scalping is more suitable for traders who are already somewhat experienced - while short timeframe trades can be a good way to get a grasp on the basics of trading, as a beginner it can be extremely hard to keep up the pace and the focus scalping requires.
timothydanie
Active member
@WalletInvestor yes, Scalping is good for the traders who already have some experience in trading. Scalping requires a trader to have in-depth trading knowledge and a good trading psychology which is difficult for a new trader to acquire in a short period of time.
Scalping works well to avoid high spread pairs.
It should be possible to avoid any losses by only backing winners. How about opening a background deal off-site and only opening a real deal when background deal result exceeds say +20 pips. Thereafter use the background deal to close both deals together.
Set background deal loss level at -10 pips.
That way the real deal should always make at least 10 pips, only losing if the closing spread is greater than 10 pips.
Polakandil
Well-known member
True, scalping could be profitable and risky, maybe not all traders suits to work based on a scalping trading style, choosing a trading strategy that makes traders feel cool and relaxed, however, expert scalping can become a winner in contest trading.
Polakandil
Well-known member
There are scalping robots created with very aggressive trading, open multiple orders with a small target, the ea called rebate hunter besides trying to catch small target profit but also from the rebate, however, these ea need huge capital or choose the micro account
Statoscope
Active member
Scalping can be tough for a beginner. Practice on a demo account until you understand how to perfect it and only when you’re completely confident, try it out on a live account. You want to save your capital, not lose it all.
Paramedian
Member
Scalping is not a simple trading strategy. To be able to use it, you need to have a lot of experience and a lot of knowledge. Scalping requires traders to have excellent technical skills and be quick at making trading decisions. It can be risky as sometimes when small losses go unnoticed, they can result in large overall loss.
The scalping strategy is popular among day traders. In an attempt to make a series of quick profits, day traders buy or sell currency pairs with a short or brief holding time in between. It involves the execution of multiple trades in a day. In an attempt to capture small price movements, a forex scalper keeps the risk small. These small price movements can become significant amounts of money when used with good leverage and position sizes. A trader gets exposed to the risks like Leverage, spreads, fees, and slippage. Therefore, a trader who scalps needs a good risk management strategy for trading.
We all know scalping is good for day traders. If you know anything else about forex trading, then share it with our real traders. Every time you just posted short replies.
finance girk
Active member
Since the profit margin per trade is limited, traders have to be very careful about how they use their scalping strategy. Best Free Forex Signals Online
Polakandil
Well-known member
Scalping trading also needs strong psychology to keep the discipline to work-based system trading, usually, scalping traders use a small timeframe to get a more detailed view of price movement and take a small target of roughly 5 to 20 pips, however, scalping could make high emotion pressure when traders face bad trades.
Forex scalping is a popular trading strategy that involves taking small, frequent profits on short-term price movements. While the potential rewards of scalping are attractive, the strategy is not without its risks. Making scalping easy requires a disciplined approach and the ability to take quick, decisive trades.
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