Forex scalping is one of the best trading strategies for making money trading currencies.
But what is it?
Is it for you?
Discover the answers below.
Ever thought of someone taking small sips of coke instead of downing the can in a single gulp?
Forex scalping is similar.
While other strategies, such as swing trading, go for the big, flashy price swings which compound or occur throughout days…
Forex scalping does the opposite: you open and close a trade within minutes to take advantage of small price moves.
But doesn’t that mean you’ll make less?
You can make many such scalping trades in a single session, thus, allowing the small gains to compound.
Thus, overtime, all these small wins amount to a happy FX trader.
(Did you see what I just did there? Uncool? That’s not very cool thing to say)
Do you know technical analysis?
The concepts of support and resistance zones will help you very much.
As will the knowledge of Fibonacci retracement and Pivot points.
Forex scalping is heavy on technical analysis.
But in truth, like the other best forex trading strategies, you need to have a good hang of fundamentals and sentiment.
In order to scalp the technical levels, you need to know those levels are the only thing moving price.
If there’s a sudden shift in sentiment for the pair you’re trading… it’s not going to work.
Thus, the first thing you need to do is make sure nothing, and I mean nothing, is going on fundamentally (which includes intraday sentiment).
Some days just don’t have that much going on.
Usually Mondays are slow. As are many days in the summer, when many traders are out of the office spending their dough.
Also, there will be occasions when there just isn’t much in the economic calendar, and there really isn’t strong sentiment moving a pair.
Additionally, some traders make use of the hours professional traders are having lunch (say, midday London, before North American traders start their day).
Others take advantage of the Asian session, since it is much more subdued (less volatility) than either the European or American ones.
Now that we have this down to pat (nothing going on with the pair we want to scalp):
How do we scalp some pips?
You scalp by checking the technical levels (support and resistance zones, Fibs, pivot points, psychological levels, last session’s high/low).
Once you have marked those in you chart (I use basic straight lines):
1. Wait for price to get close to one of the levels.
2. If price goes down to a support zone, you buy the pair (if resistance, sell).
3. Price will likely bounce off the level and will keep moving towards the other level. So close your position before it bounces off the opposing level (at a profit of course!)
It is. And since you’re not expecting anything to happen (low volatility), you get to use a super tight stop loss (good, since your reward is often small).
Since you get to use a very tight stop loss (preferably behind a resistance/support level), you can also leverage the trade up.
Why? Because you won’t really lose much if the trade goes against you.
But you can cash-in big time if you leverage those scalps up (assuming you really know what you’re doing, fundamental picture and all).
In fact, professional FX traders scalp with a real time audiosquawk (audio news feed) on all the time.
This way, even if something new suddenly happens (screwing up their positions), they can easily adapt.
Don’t underestimate sentiment.
If scalping was only about technical indicators and tools, retail FX traders wouldn’t be so unsuccessful (as a group).
Remember Murphy’s Law: If something can go wrong… It WILL.
So prepare for it.
Pro tip: price is more likely to bounce off a support/resistance zone if there are multiple technical levels close to it (more than one reason to bounce).
So you already know some of the Pros:
1. You can amp-up the leverage
2. Tight stops means low risk (though this can backfire if you lose more often than not).
3. You don’t need to wait for the markets to bring you an opportunity based on sentiment and fundamentals to make some pips.
What about the Cons?
1. You need to be glued to the screen while the trade takes place.
2. It’s stressful. Price doesn’t just bounce, it goes up and down first.
3. You need to secure a time in which nothing is going on fundamentally.
This has a lot to do with the pros and cons just described.
Can you take the pain of watching price one millisecond to the next, often going against you, every time you do some Forex scalping?
Can you stay glued to the screen while the trades take place? If you have a full-time job or other responsibilities, this may become more difficult.
Can you trade at a time in which the markets are tamer? As in, Asian session, or session breaks like described in a previous section.
Ideally, we would all have the time and interest to use all of the best forex trading strategies.
Sadly, reality laughs at us all. But sometimes, a trading style just isn’t for you.
Try it out for yourself and find out!
See you soon,
The Forex Economist
Sep 12, 17 09:09 AM
Learn what you need to know about Forex audio squawk here.
Sep 11, 17 09:48 AM
GBP (pound) traders what can you expect from the Bank of England's MPC vote this Thursday, Sep 2017? Click to find out.
Aug 21, 17 04:41 PM
Three of the eight major currencies are commodity currency. But what is that? Which are those currencies, and how can we trade them? Click to find out.