Easy Scalping with Volume and Price Action Analysis

Combining volume indicator and price action analysis can be a good strategy for easy scalping in small time frames. Here's why and how to do it successfully.

Are you a scalping enthusiast? Many have searched for the best simple scalping strategy so they can profit from the smallest price movements as easily as possible. In fact, the number of scalping strategies said to be the ultimate best is quite limitless. Not all of them are worth trying, but not every one of them is just a waste of time. If you can figure out which one may be right for you, it is possible to pick a good strategy from the never-ending list of supposedly best scalping methods in the market.

Instead of exploring typical scalping strategies with common indicators like moving averages or oscillators, this article would take you to delve into volume indicator and how to use it for scalping with price action.

Why Volume Indicator?

While the use of volume indicator is crucial in stock analysis, the same thing can't be said when it comes to the forex market. The absence of "central exchange" in the foreign exchange market has made it difficult to measure the actual volume. Measurement by any indicator is believed to be interpreting a certain part of the market, so it can never represent the traded volume of the whole forex market.

Despite its shortcoming, volume indicator does exist in forex trading and not all traders ignore it completely. Many said that what appears in the forex volume indicator is the tick volume calculated by how much the price ticks up or down in a candlestick. That's why volume bars usually reflect the strength displayed by the price on the chart.

This in turn leads to some traders trying to combine volume indicator with price action. For some reason, scalpers believe that they have a very strong short-term connection. Volume indicator is considered leading while the price action acts as a confirmation. It is believed that information retained from the indicator carries what would happen in the next movement, so scalpers referring to volume indicator can get an earlier signal to act upon.

That is one of the key benefits for scalpers as responding to market signals as quickly as possible is the essence of what they do.

Guide to Easy Scalping with Volume and Price Action

First thing first, we should decide at which time frame the strategy will perform best. As scalping typically looks for opportunities from small price movements, small time frames would be more preferred. In this article, let's just agree to use a 15-minute chart.

Next, what we should do is put the volume indicator on display. Let's say we trade on EUR/USD, then this is what it looks like on a 15-minute chart.

This strategy takes advantage of a pullback in the middle of a strong trend, so only look for high volume bars that are followed by smaller ones. During the pullback, we can measure the price range so we know where to recognize the breakout.

The chart above shows how the price is moving in an uptrend along with big fluctuations from the volume indicator. Yet, at some point, the volume bars slow down significantly at the same time the price stops making higher highs. Instead, the price movement is restricted in a range. This is what we call a pullback and we should get ready to take the opportunity in case the trend continues.

It's better to put marks on the High and Low range of the pullback. If the price breaks the upper range, it can be a confirmation for the price to continue the uptrend. But if the price decides to move past the lower range, it's better to stay away from the market since it indicates uncertainty or probably a reversal.

In the case of the abovementioned chart, we can see clearly that the price breaks the upper range of its pullback, thus confirming a buying opportunity. We can target 10-20 pips profit and 5-8 pips loss. The following picture explains the scenario of opening a long position around the upper range with a 12-pip profit target and a 5-pip stop loss level.

What if the market is bearish? Can we use the strategy to look for opportunities? The answer is simple: Yes, we can. As forex trading goes both ways, we can profit in every direction. So when the price is consistently making higher lows and lower lows, wait until the volume bars "quiet down", mark the pullback range, and set a short position around the lower price range.

Important Notes

Now that we learn how to practice a step-by-step easy scalping with volume indicator, don't be careless in carrying out the plans. Aside from the previous details, there are some extra rules that you need to follow diligently:

• You can use a trailing stop to lock profit, but make sure that it is supported by signals from the volume indicator. If the bars' size is not convincing, it's better to limit your target to around 10-15 pips. Otherwise, you're allowed to move stop loss to 5 pips every time the price continues the trend by the same range.
• Avoid entering the market at least 30 minutes before and after a high-impact news release. Trading in small time frames is prone to market noises, so find opportunities in a calm market to increase your winning probability.
• Make sure to try the strategy in a demo account before even thinking of utilizing it in a real account. Scalping is a high-risk strategy, so don't waste your money just to try new strategies if you can help it.
• It is recommended to use more indicators if it's proven that the strategy gives many false signals in your backtesting and forward testing. Technical tools to be considered include Exponential Moving Averages, Moving Average Convergence Divergence, Relative Strength Index, or Bollinger Bands.
• Stay away from choppy price movements. If a pullback can be measured in a certain range, the price tends to move randomly so it will be very difficult to anticipate a breakout.
• This strategy works in major pairs, so there will be no guarantee that we can successfully use it to look for higher gains in cross pairs.
• When volume bars slow down, it doesn't usually indicate a pullback. In fact, there is a possibility where the trend is dying and it usually leads to a reversal. Therefore, entering the market only after a breakout in the direction of the previous trend is really important. The more confirmation you can get that the trend is resuming, the better your chance of winning the trade.

As one of the best ways to build gains from short-term profits, scalping is indeed attractive, especially for aggressive traders. But to succeed in the market with this strategy is not like a walk in the park. In fact, there are things like position sizing, broker's spreads, and other stuff that need to be approached carefully. Learn further about it in The Secrets of Successful Scalping Strategy.