Prices in forex market moves extremely fast. In just five minutes or less, prices could fall several percent almost at once, then about ten minutes later it moves back up and in an instant is able to recover lost grounds. That is what makes people interested in forex scalping strategy. But, how to do it?
Prices in forex market moves extremely fast. In just five minutes or less, prices could fall several percent almost at once, then about ten minutes later it moves back up and in an instant is able to recover lost grounds. That is what makes people interested in forex scalping strategy, which means trading forex by holding position in extremely short time and attempt to make profit by opening several positions a day.
Profit potential of scalping in forex is far above other trading styles. It also outpaced long-term trading in terms of speed in producing results. Just imagine, if a currency rose 3% in three days, and you have ordered buy, from the beginning, then you will be able to cash in around 3% profit. But in that three days, the pair most assuredly experienced ups and downs several pips at a time. Therefore, assuming all of your scalping efforts pays, then you could gain much more than 'mere' 3% in three days. It is far more risky, but it is more profitable too.
Is it complicated?
Actually, it is quite easy. That is why many forex trader have tried it in the beginner stage: it makes profit fast, and seemed easy. Note that just because it seemed easy does not mean that it is easy. Here we will show you the easiest example of forex scalping strategy by using Moving Average and a combination of tricks.
Preparation For Scalping
In previous article about Moving Averages, we mentioned that long term moving averages are so slow that it better be used to observe long-term trend. So, how do we use it for scalping? There are three short preparation before you start your forex scalping strategy.
1. Choose High Volatility Market
Just like the EMA-20 and EMA-60 Crossover, this strategy is better used in fast-paced market. Beside of that, scalpers are commonly suffer through ranging market, that is why you should choose a highly volatile market.
There are at least two easy ways to check on how high is the volatility. The first is through volume indicator. Volume indicator could be found in Metatrader4 platform on the list of indicators that could be inserted on the chart. The volumes will appear on the bottom of the chart. The higher the sticks, the higher the trading volume, which could imply that there will be high volatility because there are many participants in the market.
The second is by taking a peek at fundamental calendar. In a week when many high-impact news are set to be released, market volatility most likely will run high. It will be different if, say, there are many national holidays from all over the world in a week; apart from the fact that there will be no scheduled news, many traders will opt out of trading in preference of enjoying a short vacation.
2. Choose Timeframe
Choose two timeframes for scalping: one in smaller timeframe such as M1 or M5 and one more in higher timeframe like M30 or H1. The smaller timeframe will be used to place trade, and the bigger timeframe as reference. The reference is needed for you to see where the trend actually goes to. There are too much 'noise' in small timeframe, thus it is quite impossible to see where the trend goes. In this article, we will use M1 and H1 timeframes from EURJPY pair.
3. Install Several Moving Averages Line
The third is installing several moving average line on the chart. Choose shorter period for the moving averages, either in SMA or EMA. However, we like EMA better as it offers relatively smoother lines than SMA. In this case, we chose EMA-7, EMA-14, and EMA-24, each in red, yellow, and blue. In addition, we also inserted EMA-200 (the magenta line) in order to gauge general market condition.
Analyzing The Charts And Scalp Away
After everything is done, you could freely analyze the charts and making trades. The following is some examples on how to analyze them.
1. Forex Scalping With EMA-200
If price moves above EMA-200 line, both in M5 and H1 timeframe, then it is probably safe to buy. Contrarily, if price moves under the line in both timeframes, then you would do better to sell. If both situation does not occur, but instead EMA-200 shows mixed condition, such as if price move above the line in H1 but under the line in M1, then you are not advised to open trades. Or else, open away, but be very careful. Buy near the last low, and sell near the last high.
2. Forex Scalping With EMA-7, EMA-14, And EMA-21
Look for crossovers between the lines. When EMA-7 (red line) cuts the other lines on its way upward, then it is a buy signal. But when it cuts the others on its way downward, then it is a sell signal.
That was easy, doesn't it!? The two examples could be combined to place more careful trades. Practice the strategy in demo account, and improve it so that you could adjust it for your convenient use.
Last but not least, there are three things that you should remember when using forex scalping strategy. First, avoid ranging market. It won't bring you anything but frustation. Second, don't hold an open position for too long. In case you use M1 timeframe, close the trade in three to five minutes, to avoid price reversals. Third, practice a good money management. Don't let more than 20% of your funds floats on open position at the same time.
Well, that was a rather long explanation on some easy forex scalping strategy. Is there anything you haven't understand? Join discussions on the matter in forex forums; many people with experience shall help you there. Alternatively, you could tell us in the space below, and we will do our best to find the answer.