Many forex traders use a forex scalping strategy for taking in small profits after taking advantage of the momentum and the retracement in the prices of currency pairs. The real key to the technique is maintaining proper capital management and good discipline.
Forex scalping is one of the most frequently used and popular forex trading practices in use today. While using a scalping strategy, the traders have to call for closing the trade within five minutes or at a five-pip profit.
There are various forex scalping techniques that can be adopted. The common ones are:
USING CHARTS AS A SCALPING STRATEGY
Charts will be your best friends when it comes to various scalping techniques. This is mainly because charts are based on the action at the market that involves currency prices. There are many different kinds of charts.
o Bar Charts – These charts show rates for each time unit that is selected. They show four different rates indicating opening, high, low and closing periods.
o Candlestick Charts – The units that are represented are similar to the bar charts and the rates also represent the same periods as the bar charts. The length of the candlestick shows the range between the opening and the closing.
o Figure Charts – These types of charts are good to filter non-significant price movements to help the trader in determining the important resistance and support levels. They are focused on the price without the time specifications.
o Line Charts – They are the simplest form of charts representing in each time unit the closing rates by creating a linear line. They are good tools to set up resistance and support levels.
Forex scalping strategy relies on the price action of the currency pairs. With forex scalping strategy, forex traders rely usually on a set of indicator points to guide them on when to enter and exit the forex market. Their aim is to get part of the currency movement fluctuation after they have identified the prevalent currency trend.
SCALPING STRATEGY OF FOLLOWING ECONOMIC NEWS AND EVENTS
A simple form of forex scalping strategy is to trade in the forex markets based on events and news. The traders will look for the important news to be released. This can be identified easily by looking at the economic calendar.
As forex scalping strategy is aiming for small gains of five to fifteen pips per trade, most scalpers try to make it profitable for themselves by attempting as many trades as possible in the market. They can build up on their earnings slowly and steadily by entering and exiting the market with small profits a number of times in a specified trading session. A scalping strategy will involve opening a forex position and closing it within a few minutes with the motive of speculation.
PIVOT LEVEL SCALPING STRATEGY
It has to be taken into consideration that not all the currency pairs behave in the same pattern in a scalping strategy. When working on a forex scalping strategy, you have to be careful to factor in the tendencies and the volatility of the currency pairs that you are going to trade in. For example, a fifty pip move in the opposite direction with the British Pound-Japanese Yen pair will not be the same as a fifty pip move in the Euro-US Dollar pair. Another important factor is the time required for trading. Using a forex scalping strategy for the Euro-British Pound pair in the London market will not be the same when applied during the Asian markets. Different geographical markets have a varied effect on some currencies.
Pivot points can be used as excellent levels of resistance and support in a scalping strategy. The time when the price touches the pivot points, it bounces off like a rubber ball would. You have to calculate the pivot points daily for your selected currency pairs and you will have to calculate from 1700 hours Eastern Time to the next day’s 1700 hours Eastern Time.
An effective forex scalping strategy is a trading technique that is developed in the forex market where traders can take advantage of the fluctuation in currency exchange rates on a time based frame.