Scalp strategy
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omid - Blog
omidIntroduction:
Having a proper strategy is essential to be profitable in any trading market, including the forex market. One of the most popular forex strategies is the scalp strategy, which is short-term in nature. In this article, we will learn the forex scalping strategy.
What is scalp strategy?
Scalp strategy is a type of trading strategy that focuses on short-term trading within a few minutes. With this approach, daily traders can open a position within a few minutes and move on to a new trade as soon as they receive a profit.
To clarify, let’s take an example.
Let’s say you have a $10,000 account. You open a small trade and close it in a few minutes when you make $10 profit. You get $10 immediately with another trade. If you repeat this process 20 times a day, you will make approximately $200 in profit at the end of the day. Likewise, in one month, your profit may reach $4,000, which is equivalent to a 40% return.
Of course, the scalping strategy like this example is not always so easy, and in the real world, scalpers suffer losses.
How scalping strategy works in forex
Unlike other trading strategies, scalping is very short-term, and each position in it is only open for a few seconds or a few minutes. In this strategy, you have to open a position continuously and close it with every small price increase. So you won’t need long-term charts; Because the deals are not going to stay open overnight.
Since the speed of closing transactions in this method is high, it requires more concentration and discipline than daily transactions. Therefore, only disciplined traders who have enough time at their disposal will be successful in it.
The best forex pairs for scalping
Among the forex currency pairs that include three categories of major currency pairs, minor currency pairs and exotic currency pairs, the best currency pairs for scalping strategy are major currency pairs. Because they have high liquidity and low transaction costs.
Some of the main currency pairs that are suitable for the scalp strategy are:
- USD/EUR
- USD/GBP
- USD/JPY
- USD/AUD
Best time to use scalping strategy
In the forex market, trading of currency pairs is usually possible 24 hours a day, five days a week. So, you can day trade forex whenever you want. However, historical experience shows that the best time to trade forex is during European and American trading sessions. In Europe, sessions start at 7:00 AM GMT and close at 4:00 PM GMT. But in America it continues from 12:00 PM to 8:00 PM GMT.
The worst trading time is the Asian sessions; Because the volume of their markets and their fluctuations are small.
One of the best opportunities for the scalping strategy is during the overlap of two sessions when the market liquidity reaches its peak. This interference happens three times a day:
- New York and London; From 1:00 PM to 4:00 PM (UTC)
- Tokyo and Sydney from 12 noon to 7 am (UTC)
- Tokyo and London from 8 am to 9 am (UTC)
Scalping training in forex
As we said, a successful forex scalping strategy involves trading frequently throughout the day, looking for small profits in the right trading sessions and using technical analysis when necessary to correctly identify entry and exit points. However, before opening a position, it is necessary to identify the market conditions in which a strategy will be implemented. This can be done by using multiple time frame analysis to see the bigger picture of price movements.
To apply the scalping strategy in Forex, follow the steps below:
1. First, open an account at FOREX.com to start trading.
2. Deposit the amount you want to start trading into your account.
3. Select the currency pair you want to trade.
4. Look for good scalping opportunities using charts and indicators.
5. Open your first position, immediately after the price rises a little and you make a profit, close it and move on to the next position.
You can also practice scalping with the free forex demo version. This way you can see how scalping works without risking your real capital.
Main components of forex scalping strategy
1. Timeframes: Scalpers usually operate in very short time frames from 1 to 5 minutes.
2. Indicators and tools: Some indicators and tools for scalp traders in Forex include moving averages, Bollinger bands, oscillators, relative strength index (RSI), parabolic SAR (SAR), Heiken-Ashi candles, and support and resistance levels.
3. risk management: In scalping, you must use risk management, such as determining the correct position size, stop loss orders, profit withdrawal limit and risk-reward ratio.
The best forex scalping strategy
In this section, we talk about the best scalping strategies in Forex.
Choosing the best forex scalping strategy depends on your plan and goals. However, there are a few popular options among scalp traders that you can choose from:
Moving average crossover strategy
Used indicators: short-term and long-term moving averages
Enter the trade when the short-term moving average crosses the long-term moving average for a buy position and the long-term moving average for a sell position.
Scalp with Bollinger Bands
Used indicators: Bollinger bands
Enter the trade when the price touches the top or bottom of the Bollinger Bands and anticipate a reversal.
Scalping with moving average and stochastic
Used indicators: stochastic oscillator, moving average
Enter the trade when the oscillator is oversold in an uptrend and overbought in a downtrend and aligns with the moving average.
Scalping with Sar Parabolic Index
Used indicators: Parabolic SAR
Enter a trade when the starling parabolic reverses position, indicating a possible reversal trend.
Scalping with relative strength index
Indicators used: Relative Strength Index (RSI)
Enter the trade when the relative strength indicator shows overbought or oversold conditions and aligns with the trend.
Scalping with Heiken Ashi
Used indicators: Heiken Ashi candle
Use Heiken Ashi candles for smoother price action. Enter trades based on candlesticks changing color or when they match the trend.
Scalping with support and resistance points
Indicators used: horizontal support and resistance levels
Identify key support and resistance levels and enter trades when price breaks above these levels.
Scalp with news
Take advantage of rapid market movements during significant economic news releases. Enter trades based on the market’s initial reaction to the news.
High frequency scalping (algorithmic)
Use high-frequency algorithmic trading strategies to execute large numbers of orders at very high speed.
Scalp with pivot points
Indicators used: pivot points
Identify pivot points and enter trades based on price reaction at these levels. Pivot points can act as potential reversal or breakout points.
Advantages and disadvantages of scalping strategy in forex
Among the advantages of scalping, we can mention quick profit in a short period of time and its practicality for many currency pairs in different market conditions.
The disadvantages of scalping include high transaction costs. It may lead to higher transaction fees as the transactions are frequent. Also, the psychological stress caused by the fast-paced nature of scalping can put pressure on traders. Another disadvantage of scalping is the need for more skill and accuracy in trading.
Important points in forex scalping
- Use stop-losses and limit profit withdrawals. These two will help you make sure you don’t hold positions for too long which will compromise your position when scalping.
- Don’t forget the 1% rule. This very important rule states that you should never risk more than 1% of your total balance on any one position. For example, if your account balance is $10,000, open your position so that eventually $100 is at risk.
- Before you begin, create a trading plan. Scalping requires discipline and the best way to stay disciplined is to set a strict set of rules before opening a position. The more comprehensive your plan, the better your chances of success.
- Consider general market conditions and be aware of any major news events that may affect volatility.
- Before implementing any strategy with your real money, practice with a demo account to hone your skills and improve your strategy if it needs tweaking.
final word; Is the scalping strategy profitable?
Forex scalping can be very profitable; But it requires a lot of time, dedication and patience. Because the profit margin on each trade is small, one mistake can wipe out the profits of several profitable trades. Therefore, risk management and discipline are essential for success. To manage risk, set stop-loss orders just above the last high or low. Also, aim for a profit level that provides an optimal risk-to-reward ratio.
