Forex Scalping Strategy

Screen Shot 2014-06-17 at 11.12.19

 

Video Transcription:

Hey, traders. Welcome to video 24 of the Advanced Forex Strategies Course. This is Cory Mitchell. In this video, we are looking at scalping round numbers. While we’re going to use a longer term chart to verify the signal, we are mostly going to trade this on the one or five-minute chart. So, it is a day trading strategy, brought to you by Investoo.com.

Even numbers are common stop and entry levels and act as magnets for price. An example of an even number or round number is simply 198 or any sort of level that is even. We have no pips on the end. So, here is an example, 172. Another one would be 171.000. The euro/USD, it would be 1.36000 or 1.36.

Even numbers make it very attractive to put orders there. So, we expect to see some pops in price around those round numbers. Therefore, we can scalp a few pips profit out of the market based on that occurrence. Must use a tight spread broker for this strategy to pay off. When we look at the details, you’re going to see that we’re typically looking for about a 15 pip gain. So, if you’re using a three-pip broker, that’s probably not going to work. You’re giving up too much of the profit.

So, typically we want to utilize this strategy if we have a 1-pip spread or less, approximately, and best used on pairs which have at least 80 pips in daily movement. So, if the pair is only very docile and only moving about 50 pips per day, it’s going to be much tougher to extract that 15 pips that we’re looking for. Whereas if we’re moving 80 pips plus and preferably over 100 pips a day, then that 15 pips is a drop in the bucket, and it’s much easier to collect it.

This is an active strategy. You must be there to trade. It’s not a set-and- forget. Typically these moves happen very fast. There’s normally not enough time to really set a stop and a target. So, we’re going to just have to manually enter and exit these trades. Therefore, you have to be very disciplined to utilize this strategy.

All we need to really know is we’re going to check an hourly chart to make sure that the even number hasn’t been touched in awhile. I should say round number. Round number is a more accurate description. Even number, it doesn’t have to be like 138 as opposed to like 135 or something like that. It’s just round numbers that we’re looking for.

We want to make sure it hasn’t been touched in a while. That makes sure that there’s likely to be lots of orders around that round number, causing the move that we want. If the price is whip sailing back and forth across it, all those orders have been cleared. So, it kind of negates our strategy. So, we want to make sure that that round number hasn’t been touched in a while.

As the price approaches that round number from below, buy when the price is about 10 pips away. We’re looking to exit about five pips above. These are approximations. If we end up purchasing nine pips away and get out six pips above, that’s fine. Basically this is what we’re looking for though. As the price approaches it, which is about 10 to 15 pips away, we’re looking for that pop through the level, and then looking to get on the other side, typically about a few pips as all those orders that are around it kind of get filled in a flurry, and we can just look for a very quick trade.

As the price approaches it from below, so that means the price is coming up from below, we’re expecting it to pop above the level and get out five pips above. As the price approaches an even number from above, so the price is falling to that round number, sell when the price is about 10 pips away, and then we’re looking to exit about five pips below.

We’re going for about five pips. That’s why we want volatility of at least 50 pips per day and a tight spread. If we have a big spread or the volatility is less than 80 pips per day, it becomes very difficult to grab that 15 pips.

Ideally this should be done with momentum. We want to buy as the price is moving in the direction of our target. So, if the price is approaching a round number from below, and that target is on the upper side of that number, we want the price to be rallying toward it so that we’re onsite right away. This should sound familiar. In the only time that we trade new highs and new lows video, we discussed this. We want to be trading with momentum.

This is a scalping strategy so we have to manually control risk. So, if we’re trading with momentum, and the price doesn’t run in our favor right away, we just get out. Ideally we shouldn’t be risking more than about five pips. If we’re looking for a profit of around 15 pips, we want to risk only about 5 pips.

Don’t let a winner turn into a loser. So, if that price is running in your favor, and let’s say it gets to that round number and then stalls, just get out. That momentum died when it shouldn’t have. So, something might be a little bit off there. Maybe there’s a lot of sell orders or something at that level. So, just take your 10 pips profit in that case and get out, because we are expecting that price to just move through that level very quickly. It should be a quick trade. It’s a scalping trade.

If this is taking a long time to develop, something is wrong. So, quick trade, taking it with momentum as it approaches that level. We’re expecting it to just kind of blow through, and we’re getting out with a little bit of profit on the other side, and that is it. So, don’t let it turn into a loser if it starts to turn against you.

Few quick examples here. The 172 level, this is a British pound/JPY five- minute chart. Typically has lots of volatility, more than the 80 pips a day that we’re typically looking for. In this case, at this point, this is the London session highlighted in yellow, and we have already moved. By the time we would have taken this trade, it had already moved about 80 pips, so definitely lots of good movement going on.

So, I’ve marked off this 172 level. So, here, a lot of momentum going into it. We would have potentially got faked out on this one, that 172 level, if we were looking to buy about 10 pips away. We would have bought right here. But as soon as that price didn’t move in our favor, we would have been looking to get out. So, we would have potentially taken a few pip loss here. Remember, five is pretty much as max that we want to take. So, we would have lost about five pips, absolute max. If you were quick at cutting your loss, you probably only would have lost a couple.

But the price does come back, and we can see we’re moving aggressively toward it again. So, we take another shot at it. So, we go long, about 10 pips below, right about there. So, long right about there. We’re expecting this to move onside quickly. It does, rallies through that, and we’re looking for a target about five pips above.

So, we went about 10 pips past it, so easily could have gotten out of our target there. So, we’re looking to get out about . . . It’s not going to let me put that exactly where I want it, but we can see easy 15-pip gain there as it does actually break through the level. Here, potentially lost five pips or a little bit less. So, net on the two trades, we would have been looking at at least 10 pips, probably a few more.

Should show you on the hourly chart. I chose that level because it had not been touched in a long time. We can see the price was moving up towards it, and this was the level that we were looking at, or the example I showed you. So, for the first time, when it popped above it, that was the bar that we were trading.

Once it had moved through it a few times, we no longer really want to trade that signal because the orders around that level have been move through and probably not going to have any real significance. So, the first time that it moves through is the time that we’re really looking to trade this. That was on this day, which is the day that we looked at in the example a few minutes ago. So, only the first time. Yeah, we want to make sure it hasn’t been touched.

Another example here, June 2nd. Let’s first look at it on a bit longer timeframe. Here is June 2nd. As you can see, the price hasn’t been touched in a while. It did trade through it quite a bit here, but then we have this strong move down. So, it’s been a while since it was touched. So, orders have likely collected around there again. By orders collecting around it again, we’re typically going to need at least a couple days for that to occur again.

It doesn’t have to be that this hasn’t been touched in years or anything like that. This is a scalping strategy so we want to be able to implement it fairly often. This is fine here. It was traded through a few days ago, quite actively, but the price fell away from it. It is now approaching it sort of fresh again, you could say so definitely we can look at trading this. This happens on June 2nd.

Let’s just drop down to a five-minute chart. We’ll find June 2nd again and see how that trade would have worked out. So, here is June 2nd. The actual breakout occurs before the London session. So, yellow is the London session. So, this occurred overnight.

Price hasn’t touched it, and then we get this strong rally. We are trading with momentum, no false breakouts here or anything like that once we’re about 10 pips away, looking to get in on that trade. See the price moves about 10 pips above. So, once again, we could have easily got out of that trade, right about there, 10 pips below. We are looking at entering right about here.

Similar situation to last time. This got to within about 7.5 pips. So, if we had taken the long right here the first time, as soon as that price dropped away . . . Let’s just look where the exact 10-pip mark is. So, 10 pips is right there. We do move onside, but then it quickly pulls away. So, since we are onside and then it pulls back from us, we could have likely got out of that first trade flat, avoided this little pullback, and then looked for this.

We see the momentum pick up again to the upside. We have a little bit of a breakout. Remember, we can use all the other information we’ve learned in our prior videos to help us with this. We have a strong up-move, a little consolidation, and that 10 pips to the round number basically is a breakout of that consolidation, as you can see a little breakout here. So, we would have been looking to go long right about there. Price immediately puts us onside. Momentum picks up, and we get that pop through the level as expected. So, very pretty easy trade there, again, for 15 pips.

So, a couple examples there. Both of them would have netted at least 10 pips, even with a false type move right before it.

We have to manually enter and exit these trades. We can put that target out five pips behind the round number. But if we don’t quite make it there or something, we may have to manually enter or exit with a profit or a loss.

Some traders find this tough. You got to act without hesitation, not be afraid to take a second opportunity if it comes up. As we showed both of those, they failed the first time. That’s okay. We only maybe lose a couple pips, and then we make it back on the next trade. So, zero hesitation.

Risk always less than 1%. You’re going to have to sort of ballpark your position size, based on how much you expect to risk. I’d say a maximum of five pips on these. So, that gives you kind of a top-end figure to work from for figuring out your stop loss or your position size. But once you’ve taken that trade, make sure that you actually stick to that. If you get to that five pips offside, get out. You should be trading with that momentum. These should go onside right away. You should be showing a profit pretty quickly. If you’re not, get out because something is not quite right.

Momentum has to be there. You expect to get carried onside immediately after entry. Looking to exit out five pips behind the round number, but don’t let a winner turn into a loser. So, if it gets to two pips beyond the round number and then starts to fall away or move back against you, just take the profit. Take your five pips or your 10-pip profit, your 12-pip profit, whatever it is, and just get out.

This is scalping. This is not really fine-tuning everything to hit a stop or target. We’re acting in the moment. We’re looking for a quick pop in the price, either higher or lower, through that level. If it doesn’t occur, we want out. Just take the profit, cut your losses, whatever.

Trading involves substantial risk of loss. Only trade with capital you can afford to lose. So, go through these. Test them out on a demo account. Just isolate the round numbers. Draw just a horizontal line on it, like I did. Make sure it hasn’t been touched in at least a couple days, and then look to see how you can get in on that.

I typically use about 10 pips. You may find that seven or eight works better for you. Then, you’re just looking to get out on the other side. Typically it’s going to be a manual entry. So, you’re going to have to be quick as it approaches that level. Trade with momentum. Buy it as it’s heading toward that level, and then sell it once it pops through. So, until next time, happy trading.

Comments are closed.