If you’re interested in Forex trading, then you may have come across the term ‘scalping’. In this article, we’ll provide basic knowledge of Forex scalping and go through a simple and profitable scalping strategy.
What is Scalping?
Scalping is a trading strategy designed to profit from small price changes. A trader attempts to make numerous small trades to make many small profits, usually around 10 pips or so for each trade. Over time, these small gains amount to a large sum of money.
The main difference between scalping and other styles of trading is that in scalping, the trading time frame is very short and face-paced.
Impulsive traders are the ones who are most attracted to scalping, as they don’t want to wait for a trade to set up on the higher time frame.
A trader needs to be experienced to do scalping trading. We recommend first being consistently profitable on the higher time frame and then move on to scalping. Scalping trading requires a trader to have a profitable scalping strategy and make decisions in seconds or minutes.
The most famous scalper Paul Rotter supposedly made between $65 to $78 million a year over the course of 10 years.
By being consistent with this process, you can ensure stable, consistent profits. There are two different methods of scalping – manual and automated.
Forex Scalping Strategies
Now that you are familiar with scalping, let us take a look at the five most effective Forex scalping strategies.
Static Support & Dynamic Support Resistance Strategy
This is one of those forex scalping strategies which is interested only in support and resistance levels.
Static Support and Resistance levels are the ones that a trader takes note of before commencing trade as they are the highest as well as the lowest point of the support levels.
Dynamic Support and Resistance levels, on the other hand, are said to be in a constant state of flux. Hence they are called dynamic as they are ever-changing.
Look for areas where static and dynamic support meet. These can be your buy and sell points. This strategy is very simple and can be used in conjunction with other indicators to gain further confirmation of buying and selling points.
Volume and Price Action
This strategy uses volume indicators to look for price action. It is based on the theory that changes in volume are usually followed by price action. When volume is low, it can be a sign that a trend is dying and may reverse, or that it is taking a break before continuing.
To use volume, forex scalpers need to be patient during a ranging market, spot volume spike alongside price action, and buy before prices go up. Once they are high, sell. Be sure to wait for confirmation of a bullish trend before relying on volume!
Exponential Moving Average Strategy
The exponential moving average strategy will require you to use exponential moving average indicators intensively. Using the moving average indicator is very simple, simply look at the current price levels. If they happen to be above the exponential moving average then that is a good time to sell. Similarly, when the price can be seen hovering below the exponential moving average then it is seen as a good time to buy.
Stochastics and a trend line
The trend line and stochastic scalping strategy are also reliant on indicators which in this case is the stochastic indicator complimented with trend lines.
Stochastics measure if something is overbought or underbought. A stochastic reading of 20 or below is classified as an underbought condition whereas a stochastic reading of 80 or above is classified as an overbought condition.
This is a good strategy because you have two conditions met. Trading on a trend is one and the overbought, underbought condition from the stochastics acts as the second.
Bollinger Bands
Traders generally use Bollinger Bands to check for volatility on the market they are currently trading in. Bollinger Bands work by measuring the highest as well as the lowest points of a currency pair and indicate the result using its bands which helps its user in determining when to avoid or jump into the market.
The implementation of this strategy is rather simple, if the prices are reaching the upper band then that is considered to be an indication to go short. Similarly, if the prices are reaching the lower band, then it is time to go for a long position.
Trading is an activity that rewards patience and discipline. While those successful in scalping do demonstrate these qualities, they are a small number. Ensure that your strategies are working by either using a demo account to practice or using a significantly small amount to invest and try out your strategies on the foreign exchange.
ENHANCE YOUR FOREX TRADING
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