There are many different types of forex scalping strategies in use today. Forex scalping is popular and one of the most frequently used forex trading strategy. Forex scalping is also highly demanding as it is often used by experienced traders. The effectiveness of forex scalping and the various strategies that forex traders have built/come up with has been tested by many years of trading across various types of traders.
Forex scalping is nothing but taking a position at a defined entry but no clear profit target where the positions are closed, often in less than two minutes of opening the trading thereby scalping even the slightest of profits. To explain this a bit more clearly, Forex scalping strategies call for closing the trade at either top of two minutes or at a five-pip profit, not in the same order but rather at the first occurrence of the either. It may vary also if somebody has a boundary-based scalping methods.
Most forex traders prefer working with the pivot points which has only a limited potential, as mentioned above, up to five pips or perhaps a bit more. While forex scalping is good to make fast profits, the downside is the fact that Forex scalping also requires the trader to stay glued to their screens screen all day, which can prove to be quite taxing in the long run.
Forex scalping is one of the main areas of interest for most, if not all day trading financial institutions. The reason being that Forex scalping strategies tend to spread the risks across the entire trading portfolio thus minimizing the risks of ending up in a complete loss.
Forex scalping strategies – Using Charts
Forex charts are your best friends when it comes to utilizing various forex scalping strategies. This is because charts are based on the market action which involves prices, and there are many different kinds of forex charts. For the sake of simplicity, we mention a few,
- The Bar chart: The bar chart shows in each time unit that is chosen, three different rates for each one. The common rates shown by bar charts are the high, the low and the closing, but we can also find charts that also show, the opening of the period of time.
- The Candlestick chart: You can read more about Candlestick charts here. In the candlestick charts, The units represented are similar as the ones in the bar charts, which show the prices at their opening, high, low and closing rates in candlestick format for each unit selected. The length of the candle’s body represents the range between the opening and the closing, while the whole candle (top and bottom included) show the whole range of trading prices for the selected time unit.
- Point and figure charts: This type of chart is useful to filter non-significant price movements thereby helping the trader to determine critical support and resistance levels. The point and figure charts are mostly focused on the price without the time specifications. Instead of showing a linear representation of time the Point and figure charts show the different trends in the price.
- The line chart: The most simplest chart from the lot, this represents in each time unit showing the closing rates by creating a homogeneous line. The line chart does not show what happened during the time unit selected by the users, but is a good tool for traders to set support and resistance levels.
Forex scalping strategies – News and Events
The most simplest form of forex scalping begins with trading the markets based on news and events. In this kind of a scalping strategy, traders look for the important news to be released. This can be easily identified by taking a look at the economic calendar. Choosing the most influential news that is expected to shake the market well enough to make a few quick pips. Based on the news/events that they plan to trade, traders also take into account the currency pairs that might be affected by the news.
Traders usually prepare 15 minutes before the data is released by placing buy/sell stop orders on both sides of the trade, 15 pips away from the current market price. Most often, within the hour of the big news to be released, Forex markets usually tend to flat out, this is because no significant trading is done, currency is often “stuck” in a small tight range.
When the market impacting economic news is released, the currency usually moves more fluidly, thereby producing large pip movements in either of the directions. Utilizing such a forex scalping strategy, traders will be able to get in and out of the trade in seconds at almost zero risk.
Experienced forex scalpers usually study the currency pairs and its reaction to the news before they actually place their traders. By doing so, traders begin to predict the direction of the price spikes and the length of the move in pips in order to set entries and profit targets more accurately and reducing their risks.
Forex scalping strategies – Pivot level scalping
Pivot points are excellent levels of support and resistance. The moment price comes and touches the pivot points, it bounces off like a rubber ball. Thus came about the pivot point scalping strategy.
There are certain parameters that traders need to be aware of before utilizing the pivot level scalping.
Calculate Daily pivot points for your favorite currency pair. For calculation use data from 5pm Eastern time to the next day’s 5pm Eastern time.
Monitor the 1 minute charts until the price touches any of pivot point lines, or moves at the very least one pip away from the pivot point. This is where patience pays off as it can take a while. Usually the price does touch the pivot points 90% of the times. Take a position but within reasonable limits.
Set your stop loss to not more than 3 pips and spread on the other side of the pivot line.
Close your trades within the first completed one minute candle and as soon as you see any profits.
The above strategy does not have a defined risk reward ratio as it is variable according to your trailing stops. It is highly advisable to use trailing stops in order to make the pivot level scalping more efficient.
The pivot level scalping has become popular quite recently due to the spreads being high. Most forex brokers now a days offer around 6 to 10 point spread for eur/usd which makes this a more profitable strategy.
Forex scalping strategies – Morning breakouts
Trading the forex markets an hour or two ahead of the ‘morning bell’ is another good forex scalping strategy. The markets are usually more calm and begin to prepare itself for the day. In such a scenario, traders can place only two orders, above and below the last candle’s high and low which can gain you about 5 pips. The most commonly used currency pairs in this type of forex scalping strategy are the EUR/USD and GBP/USD.
Traders must that that in order to be successful with forex scalping, aspects such as patience, being calm in the face of market turmoil, especially a particular set of traders who trade in directional, trending markets. Forex scalping involves a certain level of discipline and requires a methodical and at times even a mechanical approach to trading currencies. These traits will help to increase the profits for any forex trader utilizing not just the above mentioned but their own forex scalping strategies.