Setup for Scalping the Forex market
By Vladyslav Yudashkin Updated November 21, 2022
Absolutely all traders who trade on the currency market can be divided into three categories: those who open long-, medium- and short-term positions. Choice of trading strategy depends on many factors (personality, level of employment, access to computers, psychological aspects of a trader, etc.), so, ultimately, everyone chooses the strategy that appears to be closer to him.
This article will deal with traders who are not just trading short-term (intraday or day trading), but traders who choose extreme scalping strategies – “scalpers”. And to be more precise, about scalping forex strategy itself with its pros, cons, profitability and potential pitfalls.
By choosing a scalping strategy, a Forex trader is thus preparing himself for multiple open and close deals during the course of one trading day. The number of entries depends on many factors, among which is the degree of aggressiveness of the scalping method, the number of currency pairs used in trading etc.
Thus, the scalping strategy implies that the profit from each individual trade will be relatively low, but at the end of the day income can look very impressive. As a rule, time-frames selected for trading are minimal – one- and five-minute periods and possibly fifteen-minute periods.
The main advantage of scalping methods is that they may be applied for various financial instruments as absence of some or other parameters does not affect the basic principles of work. For example, in the Forex market, the absence of the tumbler and the tape makes it impossible to use some strategies, but the charts are everywhere, the intervals and candlestick parameters are similar, so it is possible to work with currency pairs, binary options, and stock indices, i.e. with almost all types of financial instruments.
How Stock Scalping Works
To trade successfully with this strategy, a trader will have to fulfill certain conditions and also he will need some tools. For example, to trade in the stock market, the trader must have access to the stock market throughout the trading day, tools for graphical analysis, for example, using the MT4 platform or a platform developed by the broker through which the trader trades.
It is clear that the trader is physically unable to continuously watch the monitor, so various forex scalper advisors have been developed and actively used. Expert Advisor Forex scalper allows the trader to limit himself to opening and closing orders manually, based on advisor’s recommendations, and to calculate the amount of entry. Or simply keep the terminal turned on in case the advisor is fully automated.
Of course, forex cannot be called as constant, market volatility leads to a large number of losing trades for scalpers, but proficient trading allows you to remain in the plus of the total balance of your deposit. But how to achieve a positive result? If we look at the theory, it is very simple – the number of profitable trades should exceed the number of losing trades, stop-loss should not exceed 10 points.
There are a lot of proponents of scalping on Forex, market newbies are fascinated by the opportunity to get a few hundred percent of profit per month. However, unfortunately, nothing in our world is simple, and if scalping would bring huge profit so easily, everybody would become millionaires long ago. High profits always mean high risks, many traders who have at least some experience know how scalping can crash their dreams and kill their accounts or vice versa bring huge profits. Scalping is super profitable, but also unpredictable and dangerous. We will help you learn the intricacies of this skill in the course “THE 5 DAYS OF SCALPER TRAINING” , as well as provide an elaborate guide demonstrating that this method is used by both very experienced traders who have been trading for many years, and beginners.
Spreads in Scalping vs. Normal Trading Strategy
Spread is the first thing a trader pays when opening a position. And since forex trading is all about enriching the trader, every cent counts. If you are a scalper rather than a medium-term trader who keeps trades for a couple of hours to a maximum of a day, it is especially important for you to make trades in instruments with the lowest spreads. After all, when scalping, a trader can close dozens or hundreds of deals during a trading session.
Under normal conditions, the trading provides the scalper with stable profit. This is due to the fact that the spread between supply and demand is usually stable, because the supply and demand of liquid securities remains at the same level.
Unlike traditional trading, the spread in scalping will play an important role in determining net profits because the trader enters the market frequently. Scalping will result in more costs than profits because of the transaction costs associated with each trade. To prepare for the occasions when the market shifts against you, make sure your targets are at least twice your spread.
Scalping as a Primary Trading Style
Please note that forex scalping can be costly in that the trader must have sufficient funds available at all times in order to be able to open a counter trade at any time in order to cover any abnormal open order. Commissions and spreads should also be kept in mind. While forex scalping strategies require an average profit of 5-10 pips per trade, a spread of 3 pips can more than halve a trader’s profit. Therefore, to use scalping strategies effectively, the trader should choose a broker with minimal (preferably fixed) spreads and commissions.
The strategy’s disadvantages include, first of all, a rather high level of psycho-emotional and physical workload. This can be explained by high demands to control the trading process which requires the trader to be present at the terminal all day long and constantly focus on the behavior of trends. Each of many trades has to be monitored up to the moment of its completion which is a must for correct closing and profit earning. In this context, scalping more often becomes a field for professional traders who have accumulated enough experience to trade in such a rigorous mode.
To sum it up, scalping strategy in Forex is a unique trading process which not every professional, let alone those just starting their trader career, can use for a long time. Nevertheless it is necessary to have such a trading strategy in your professional arsenal and be able to use it effectively, because the scalping method can bring traders serious and stable profit during tense markets.
Indicators for Scalping: to Use or Not?
The technical analysis works with the past price data, which means that all its trading tools will have a minimal, but lag in relation to the current market. Always keep it in mind when you start trading on the 1-minute timeframe.
The purpose of the settings is to eliminate the lag as much as possible and to filter out market “noise” in the resulting strategy. The precise selection of parameters for a particular trading asset turns a simple indicator, such as the moving averages, into “scalping”.
Indicator for scalping is usually used to simplify the technical analysis of the market and to speed up the decision making. For example, in long-term trading the trader has a possibility to analyze market events for a long time, but in scalping it has to be done quickly. And indicators are used to understand the market better and not to miss the opportune moments for making deals.
This type of tool can be used differently – as a supporting tool or as the main one. Often traders use indicators for drawing trend lines, channels, support/resistance zones, patterns. When a chart does not resemble a simple set of numbers and lines but becomes clear and logical, it becomes easier to find good entry/exit points.
If the indicator is used as the main tool for scalping on Forex, then it is possible to talk about fully automatic trading. A trader just observes the situation and opens deals at the moment when indicator signal appears (sound or arrows). Such trading is risky enough, because only a real person can quickly enough react to market changes and atypical situations.
Moving Average Ribbon Entry Strategy
Any strategy based on trend trading has a chance of closing the trade with a profit close to one hundred per cent. The only problem is choosing the right way to determine the trend direction. There are a lot of such methods and technical tools for their implementation.
Moving averages have long ago occupied the position of the most popular tool. Their peculiarity is that they are one of the simplest tools, they analyze prices and filter out random fluctuations, identifying stable market trends. And any strategy based on them should theoretically be profitable. If not the notorious human factor.
For beginners it is worth reminding that moving average is a technical indicator, based on market price average over a certain period. It clearly indicates the current market mood. Location of the price chart above MA is upward, below it – downward. And in each case the moving averages become either support or resistance lines. It all sounds very simple. But it is not as simple as it sounds. Moving averages come in different forms, depending on how they are calculated. You can simplify the familiarity and process of understanding this tool in our course, “THE 5 DAYS OF SCALPER TRAINING” , saving personal time and providing a solid foundation for starting experience in scalping.
Determining the trend direction and its stability is the main task of moving averages. The direction of the trend is determined according to the direction of movement – up or down, while the strength of the trend is determined by the slope angle of the curve. The greater the deviation a moving average has from the horizontal, the stronger the trend is. In addition, moving average lines can be used to clearly define the boundaries of possible price corrections.
What is the best scalping setup you can advise me on?
There is no ideal set of tools for a scalper, it should be chosen individually, based on the trader’s expectations, his needs and peculiarities of his work on the market. With time everyone will develop his own unique style combining different trading strategies.
Should I try trading on the news?
When using this method, you should be aware that the price can move hundreds of points in a few minutes, while in the absence of such catalysts the price may take days to cover the same distance. I would like to say right away that trading Forex news is not for the faint-hearted. If you are not ready to take higher risks or you simply can not control yourself in a stressful situation, then you better not deal with this type of trading.
What is an acceptable spread size?
The spread undoubtedly affects trading and the higher the spread, the lower the trader’s final profit. On the one hand, the lower the spread, the less predictable the currency pair is and the more popular it is with traders. On the other hand, low spread allows making precise entries with big lot (scalping) and due to it receiving good profit. If you trade on the long term, the spread does not matter at all, it is swap, which should be positive or it should be absent at all. If you trade on the short terms, the spread might not only bring the trade to naught, but also give losses. But if you trade profitably, the spreads will not significantly change the profitability.
The impact of spread size will be especially noticeable during periods of low volatility, when the market stands still for 3-5 pips. But if you do not open a deal with 10-20 pips, it will not be in flat for a long time. Although everyone has his own trading system. Spreads are always important, especially if you use scalping to trade. The most important thing in Forex trading is to choose the deal direction, to choose the direction of price movement in the nearest time and in general, what the global trend is. On the other hand, low spreads allow earning in the market with low volatility. It is very difficult to trade if there are big spreads and if the market moves slowly.