In forex trading, there is no wrong or right way to trade. There are only profitable and non-profitable trading methods. Forex scalping is one of the several trading methods alongside intraday and swing trading strategies that are employed by most forex traders. Scalping requires passionate traders as it deals with waiting for favorable signals in the market. It involves swift opening and liquidation of trading positions which is done in small time frames ranging from 1 minute to 5 minutes. It is ideal for those seeking to make money over a short period rather than waiting for the long term. However, for you to reap marginal profits in scalp trading, you have to understand various technical analysis and be ready to spend several hours analyzing the market.
The most important thing about forex scalping is that as an investor, you don’t hold any share or asset for a long time. It means you can prevent losses quickly and still make small but frequent profits. The secret is to remain pretty sharp and be ready to respond quickly to changes in the market.
Trading Tips for Scalpers
Have a technical analysis tool in place
Having a technical analysis tool in place for your currency should be the first consideration in scalp trading. It could be active graphs or candlestick charts and more to display current currency prices from time to time. Trading should be done during active market sessions as this is when you can find good scalping opportunities.
Additionally, you already know that that you shouldn’t hold on to an investment for quite a long time. Therefore, as a smart trader, you need to consider the trading volumes. Devise a strategy that allows you to execute a stop-loss and grab as many small marginal profits as possible. Most advanced traders can execute as many as 100 trades per day and get away with handsome money.
Understand how to read and use scalp trading indicators
You will find tools like Relative Strength Index, Support and Resistance Metrics, Bollinger Bands, and Awesome Oscillator.
How to scalp with Relative Strength Index
RSI measures the most recent changes in currency prices. You then use the data to test whether the currency has been oversold or overbought. This helps you to know the right time to buy or sell. RSI uses average profit and losses incurred over a certain period. It gives you values of particular assets or currencies.
Values that are next to or more than 70 implies that the currency has been overbought. It also shows that the currency is trading at an inflated price.
Scalping with Support & Resistance Metrics
Support is used to describe a point of strong and stable demand. It helps to cushion against price falls. Resistance, on the other hand, is a point of strong selling that safeguards against more price hikes. It is vital that you understand these two critical points. The moment the price goes above the upper line, the support changes as well.
Using Bollinger Bands
BB was coined in by John Bollinger. Bollinger Band uses a moving average technique together with two other trading bands at both ends. BB calculates the standard deviation through subtraction and addition.
It has two price channels that act as standard deviation and one central line that acts as an exponential function showing the moving average. The expansion and contraction of the bands display price movements. It can either be volatile or limited to a tight trading pattern.
Scalping with Awesome Oscillator
AO is another indicator that offers an attractive way to do scalp trading. Oscillator indicator evaluates market momentum. It shows the period space of simple moving average and runs from 34-5. SMA is calculated by considering the midpoints of every individual bar. When the bar rises above zero, then it is the right time to buy. It shows a transition from negative to positive.
As a smart scalper, you need to have a profitable scalp trading strategy with a higher win/loss ratio. Experts recommend that you leverage 15% of your purchasing power for every scalp trade you do. Your risk in every trade should be small and stop-loss order next to your entry point. It is advisable to ensure that your risks should not go beyond 1% of your purchasing power. Learn to scalp small and lightly.
For you to succeed in scalp trading, you need to open an account with forex brokers that allow scalping strategy and you need to have solid trading strategies in place. Most of these strategies are not different from other short-term forex trading techniques. Among the top secrets to consider include having proper technical analysis tools in place, knowing how to manage risks and understanding how to read indicators such as RSI, S&R, AO, and BB.