Profitable Forex Scalping Strategies and Application in the Market
Foreign exchange market or forex is known for its volatility, volumes and luminous place that continues all day, all night for 24 hours a day for five days in a week. It channelised economies by changing one currency note into the other based on their valuation factors. Forex scalping revolves around it.
The exchange precisely takes place for tourism, international trades and commerce-related purposes globally. Besides, there may be multiple reasons for it also. And an average transaction of $5.1 trillion in the forex market reflects the phenomena.
The currencies in it get traded and exchanged in pairs; like GBP/USD or USD/JPY etc.
Purposes of foreign exchange
Market players use foreign exchange for hedging against the rate of interest perils, for diversifying portfolios, and for keeping a tab and anticipating the geopolitical events. Besides, here are a few more functions:-
- It maintains liquidity during the cash crunch situation or an economic crisis.
- Central banks use them for keeping the market steady during the causation of inflation due to external and internal factors.
- Foreign reserves are created for meeting the peripheral obligations of the market and trades.
- Some nations use forex reserves for funding infrastructure-related sectors without compromising on the country’s integrity.
- Many countries use the forex funds for recapitalising their banks as China did.
That is why trading forex becomes pivotal for not only for individuals but for changing the fortunes of a nation. People who trade in the world of the forex market are well-aware of scalping and the role of strategy in the gambit.
Know what is Forex Scalping
It is a purview where a trader makes attempts for small profits through several short term trades with minor investments in the market. Often, on average, ten pips for every trade.
As time passes, these small gains turn into a large one. The trick for great returns lies in trading the instruments that have the lowest spreads in the market. That is the effective tact of scalping for every pip counts.
Also, scalpers must think about the fees they may have to pay for each trade and then likewise draw a strategy around it. The charge varies from a broker to brokerage firm.
Paul Rotter has the legendary figure in the world of forex scalping. He used to clinch USD 65 million to USD 78 million each year during his purple patch for almost ten years. However, techniques, monitoring and amount of dedication that went into it must be learnt by a forex scalper.
Notably, a slight error can swipe all funds earned over the years. So, besides focusing on trading, it is imperative to be vigilant of what is happening around to gauge factors that can affect the financial market.
Things to ponder in Forex Scalping
- One bad trade can take away all gains in it.
- Have patience, don’t be so quick which negates all profits.
- Make sure, closing and opening of trade have some time in between. It will allow traders to draw some advantages in monetary benefits.
Here are key needs that forex scalping strategies may require:-
- The first thing it needs is a massive movement of the market, in red or green, whichever way. The volatility offers best chances to appreciate funds.
- Forex scalping has a fixation for the market environment that can explode now and then. It creates chances for investments either way for investors. Here, short pauses in between act a route for trading.
- In the absence of volatility, it is best to avoid entering the market. Placement of a different strategy may claim wonders in that situation.
- If the trader is unsure, it is better to wait for the next wave of volatility to emerge.
Forex scalping: Identification of the volatility time
When different markets overlap, it is the time when a breeze of volatility flows in the corridors of the financial stream.
When markets like Tokyo, New York or London are open at the same time, fluctuations get affected, which triggers volatility.
Identification of trends is another important aspect before applying forex scalping strategies. Spotting key points are the markers for exiting and entering the market.
Usage of charts in forex scalping
- Any chart that ranges between 1 minute to an hour is useful for scalpers. Anything that exceeds that hour limit is useless.
- A trader should keep an eye on small movements. A transaction around ten pips is good.
- Ahead of starting a trading session, one must follow daily charts. It helps in spotting lows and highs of the currency market.
PS:- Based on technical and fundamental analysis, a scalper may take a call on forex scalping.
Here are the best profitable Forex Scalping Strategy
The finest scalping strategies rely on indicators. They inform the trader when to make a trade. Some people use a combination of different strategies. Remember, usage of two signs can yield better results for traders.
The volatility of Bollinger bands depends on its distance from the centre. The more distant they are, the better is the volatile factor.
Measurement of low-high points:- It helps in anticipating when to make an investment and when to avoid them. The trick lies in locating its range.
For executing the plan efficiently for profit-booking, a trader should go long when price touches the bottom and must go short when it hits the pinnacle.
The plan execution can happen by using the ten pip rule. Adhering to that, traders can implement their strategies effectively.
Exponential Moving Averages (EMA)
It depends entirely on indicators of the exponential moving averages. The technical tool showcases the underlying trend of the foreign exchange market. It exhibits the median price of a given period rather than the live market price.
The strategy is recommended to be used during the bearish and bullish markets for exponential benefits.
Signal to sell: When the price goes below the EMA.
Signal to Buy: When the price goes above the EMA.
For identifying the crucial and accurate selling and buying points, one can use EMA more than one.
In the bullish market, when the rate goes above the highest EMA, then one must invest or buy the asset, it signals opportunity.
The bearish market works contrary to it. There is a signal of selling when the EMA hits the lowest.
Usage of Stochastics
The strategy is the indicator of instruments are overbought or underbought as per market valuations. A trend line helps in classifying the plan. If it is below 20, then there’s speculation of an underbought scenario, and anything beyond 80 gets compartmentalised in an overbought category.
One cannot execute Stochastics planning in a subdued or ranging market. A trader would need the market to dwindle like a pendulum, trending up to down. Such trends are in symmetry with the tactic.
People can use trendline tools for determining potential signals for buying and selling instruments and assets. The meeting point or crossing point of trend lines provide the signalling.
Once the situation occurs, people need to look for overbought and oversold conditions. Investors can utilise them for entering and exiting the market.
Also, the channel pattern can be used by tweaking it a little instead of trend lines. That marks better resistance and support levels.
Price action and volume
For any price action, the strategy seeks the help of volume indicators. Here, the price action acts as the confirmation, while volume behaves like a signal.
The low volume identifies with a diminishing trend and exhibits that things are reversing as a break to bounce back later on.
After hitting low, high volume is right around the corner. Forex scalpers have ample opportunities to make full use of short term price action. Traders should buy currencies before the prices go up. But patience and resilience are two traits which they need to apply while trading and executing orders in a foreign exchange market.
A ranging market is not sufficient for executing volume and price action plans. One needs to wait for a hike or spike and spot the uprising trend before making a sell.
Bullish trends are friendly for trading forex pairs for volumes and so the chances to make it big and profitable.
In that case, traders should confirm the news of up or downtrend from a genuine source. People trading in the forex markets should check who and from where the information is floating to their space.
As the forex market is mostly decentralised, getting a clear picture of the entire bazaar is not easy. Hence, it is advisable to wait for exact numbers of volumes to appear.
There are different support and resistance levels in every instrument you trade.
Traders have various line indicators for resistance and support levels.
- Meeting point of dynamic and static support:- These are the buying and selling pointers for investors.
- Resistance level and static support:- Both should be present from the start of the trading. They help get the lowest and highest points in currency trading.
- Change in resistance and dynamic levels:- They illustrate changes during the market behaviour. The resistance and level may alter depending on frequencies and fluctuations in the volumes of the market.
PS:- The strategy is usable along with other indicators and plans easily. In practice, it is also beginner-friendly. Resistance levels and dynamic support are like a stream of water or flux. Hence, they keep on changing the position.
Some essential points that must be paid heed by interested and experienced traders:-
Keep it simple:- It is a thumb rule to not convolute things when trading forex. That has the potential to earn more than the anticipated marker. A Complicated strategy, in this case, is like elephant’s ivory (outer teeth), that make no impact in digesting the food.
Simple plans take the burden of pulling the strategy off successfully. It is conducive to keep emotions down.
PS:- Do not apply more indicators during the application of a lesser number of strategies (one or two).
Do not follow blindly
Following any advice for applying any strategy during trading must get checked and scrutinised. Sometimes, blind belief can cause massive losses to traders. One should conduct a backtest.
There are several strategies listed in the article and several such articles, but for every ailment, the pill is different. Hence, not all would fit the bill of trading.
Backtest with a demo account:-
Demo accounts are like punching bags. From beginners to experienced investors and traders should practice their ideas on it before getting in the ring of actual battle (trading).
However, no practice can meet up the level of match practice. No demo account can set the standard of real-time trading. Hence, over-reliance on any tool or technique is not advisable.
Don’t risk much
A beginner should try and start with a small amount. It edges past risks and moves more towards profit booking advantages. Additionally, if some trader is confident over a strategy, then he/she may give their fortune a try.
Some key points for initiating scalping
- Always seek more than two confirmations before buying or selling.
- Never do anything overtly, be it’s your forex scalping strategies.
- A right mindset and swift platform that offers multiple features are advisable.
- Don’t run behind big gains. Wait and encash small benefits over time. That’s a risk-free scenario.
- Forex trading style must be compatible with the abilities and power of execution of a trader.
How to open a forex scalping account?
- Choose any broker of your understanding like ROinvesting or PrimeFin or GlobalTraderATF and fill up normal details for starting it.
- Use your skills on demo accounts offered by the forex broker and test the strategies before going live.
Implementation of forex scalping strategy requires clarity in the head. A proper chalked out plan can be executed, provided things are in control, and there is a clarity in mind.
Newbies must take one route at a time. They should master one indicator followed by the other. Going hastily may put a trader in a situation of mess and misinterpretation of readings may happen.
Use demo accounts before practising them in live trading.