Forex Scalping: Gaining Quick Small Profits

Forex scalping is essentially a simple trading strategy that emphasizes on short and prompt transactions, carried out on a regular basis via the process of entering and exiting trades numerous times daily. All of these must be played out using analysis geared towards forecast and money management. Adequate knowledge about the instrument being traded is beneficial when trying to scout sharp price actions. Basically, scalping in the forex market is characterized by entering and exiting trades within a minute.

Scalpers will go as far as scalping between five and 10 pips for every trade they enter and this process will be repeated concurrently the whole day. Scalping strategies will make do with high leverage and accumulation of few pips profit at any given time, especially when conditions are favorable, the process is repeated many times over. For instance, a standard lot has an average pip value of $10. This implies that for every 5 pips derived off each trade entered, the trader makes around $50 and if this process is being 11 times a day, the trader makes $550.

How safe is scalping?

Scalpers will always argue that in view of their minimal exposure to market forces, it is less risky to scalp than it is to be a range trader or a trend follower. Scalpers will have to contend with the bid/ask spread and nothing more, since there isn’t much other factors that can affect a position within the next minute of trading or so to deal with.

Scalping sure does require an immense amount of discipline and patience from traders who certainly will need to accumulate a succession of minute gains. It may be a bit hard for traders who are trend seekers, but the idea still holds that you’re forfeiting large infrequent profits for small, frequent ones when engaging in scalping. Losing concentration for just a bit may be disastrous and you stand the chance of throwing away gains made in the past days or even months.

A forex scalper should be comfortable with being in front of his computer screen without experiencing drop in concentration. It is daunting task for any scalper to ensure that none of his positions goes beyond the short holding timeframe or is catapulted into huge negative. What is crucial is for the scalper to be in the right mental and emotional state, such that bug gains are overlooked for small ones that are accumulates over time.

An Easy Scalping Strategy

To be able to effectively trade a trend based strategy, a trader needs to find the trend. Employing the 200 period Simple Moving Average is one of markets most important tool. An investor is able to add this indicator to any chart and see if price is aligned above or below the average. When price is seen to align above the chart then it signals a bullish trend, when below the trend a bearish trend is on. The GBP/JPY chart on the 5 minute timeframe defines these rules.

Considering the information above, a trader should look to buy the GBP/JPY if the chart formation trends higher. Expectations are that price will stay above the 200 period simple moving average if the bullish trend continues, thus the formation of new highs. This is shown in Fig. 1.0.

1-Scalping

Fig. 1.0

Entry Criteria

Upon spotting a trend using the 200 period moving average, and a trading bias is established, traders will be eager to get a technical trigger that will enable them take positions in the market. Adding an oscillator like the slow stochastic to your chart can offer you the much needed solution. Looking at the GBPJPY chart in Fig.1.1 the trend is bearish and we’ll look to place a buy order when the slow stochastic returns back in the direction of the trend. This is seen when the green %k line crosses over the red %D line above an overbought level of 80. Find the example as shown in Fig. 1.1 of the slow stochastic crossovers on the GBPJPY at point 1 & 2 and its corresponding spot on the chart in Fig. 1.1 shows a decline. It is important when employing this strategy to avoid buying when short term still continues.

1-2Scalping

Fig. 1.1

Just as seen in active market strategy, scalping in forex is laden with risk. It makes it imperative to know in full glare that the trend would come to a halt eventually. Scalpers can employ a swing low or possibly the 200 period moving average as levels for which stop loss can be determined. In an event where price breaches this point and starts forming higher highs, traders might decide on exiting any open short positions and seek other opportunities.

Conclusion

A scalper must get familiar with the broker’s trading platform to verify whether the broker truly supports scalping. Basically, we find different brokers offering diverse trading platform solution, some of which might not be suitable for a scalping strategy.

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