As we will go through in this post, scalping can open the way for high reward trades using some very simple strategies. Scalping can often involve higher risk levels and you will need to be switched on and watching your charts at all times. Not only will you need to be switched on and watching for potential trades, but when you are in a trade you will need to be monitoring it constantly because the markets can change rapidly.
Scalping is similar in many ways to day trading.
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With both strategies you will be trading during the one session and not holding your trades. The main difference between scalping and day trading is that day traders will normally pick one or two trades to hold for the session. Day traders will often analyze their trades longer and will have a longer trade holding period.
Scalp traders are using much smaller time frames such as the 5 minute and 1 minute charts to quickly jump in and out of trades. Scalpers are relying on making profits from very small price movements in a very quick time, whereas day traders can be holding their trades for hours with far bigger pip gains.
One of the best indicators to scalp the markets is the moving average and in particular the exponential moving average or EMA. In the example below we can see the 8 period EMA has crossed the 21 period EMA and price is strongly trending higher leading to potential bullish long scalping trades. A lot of the very popular and successful scalping trading strategies have the same things in common. When using a scalping strategy you want to look for a strategy that has;. The best scalping strategies will allow you to find many potential trading opportunities.
This will give you the chance to make many trades, but also weed out the bad setups. You should also be mindful of Forex pairs and other markets where there is a high cost to trade and high spreads. This will make it incredibly hard to be profitable when scalping.
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When scalping you will be using small stops and the best strategies will allow you to find large risk reward winning trades that will cover your losses and make you profitable. The key to this 5 minute scalping strategy is finding a strong trend with a moving average crossover. When the 8 period moving average crosses the 21 period moving average and begins to widen we can begin to look for trades in the direction of the trend. In the example below; the 8 period exponential moving average crosses above the 21 period moving average and starts a strong trend higher.
Trades could then be hunted using other confluences such as using Japanese candlesticks for entry points or major areas of supply and demand. As a new Forex trader, you can help shift the odds in your favor by choosing a good Forex trading strategy for beginners. The article below outlines some effective, simple Forex trading strategies which only require the use of a single technical indicator. Forex trading strategies best suited to beginners have the following characteristics, which are not easy to find together:.
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Big claims are often made for a large number of trading strategies, but the only trading strategies which have clear rules and are reliably profitable over the long-term are those which rely upon trend following or momentum principles as one category, and mean-reversion strategies as the other mean reversion is when a price tends to return to its average value. There are a lot of other strategies which rely upon various quirks or fundamental or sentimental criteria, but these either tend to not be profitable over the long-run or are overly complicated and requiring of more discretion than a beginner can safely exercise.
It is also important that the new trader is not exposed to large losses, no matter how temporary, as they can be psychologically crushing to even experienced traders. This is why the best Forex trading strategies for beginners allow for low risk and small position sizing of trades. Time frame is also important, as a major reason why most beginner Forex traders fail is due to their being encouraged to trade on shorter time frames.
Trading profitably with shorter time frames is an acquired skill, so it is best for beginners to stick to using daily charts and perhaps using 4 hour or hourly charts at the same time to find more precise, lower-risk trade entries. Of course, beginners may not have a lot of time to devote to Forex trading, or want to get used to it slowly, which is another reason why the trading strategies outlined here may be traded on only the daily or weekly time frames. This means that it will only take a few minutes of your time once per day or per week to trade them.
The final factor in determining a good trading strategy for beginners is whether the strategy provides some room for learning. The beginner trader should be able to learn using a strategy with a positive expectancy, but the strategy should offer more than just pushing buttons according to set rules. The best way this can be accomplished is for the strategy to have clear rules, but for the beginner trader to record their own optimism about each trade before it is taken once they have some experience in using the strategy. Then after, say, 20 trades, the trader can check their records to see how well their expectations matched the results of the trades.
Once the beginner trader has established an ability to determine correctly in advance which trades are likely to turn out better, the trader might decide to risk more on the favored trades, or to pass on entering the unfavored trades. In this way, the new trader can build up their trading skills, while still trading and hopefully making money.
The best way to get started is to identify some simple trading strategies that have a good track record of working in Forex. Advertisement Trade long or short with any of our selected brokers Trade now. The best simple trading strategies for beginners should be technical strategies based on either momentum or mean-reversion principles, easy to follow, and conservative. In this section, I will set out the detailed rules of some trading strategies which new traders can use to both profit and improve their trading.
It has been well established by academic research that the price movement of liquid financial instruments shows a momentum effect. This means that when prices are moving strongly in one direction, it is more likely that this directional movement will continue over the short-term than reverse. Also, it is likely that any further movement in the direction of the trend will be stronger than any movement against the trend. We can use this momentum property to see that when prices are breaking to new long-term highs or lows, we have an edge on our side which we can use to profit.
So only these two currency pairs should be traded when using this trading strategy. What is this strategy based upon? We can see that when we got a daily close at a new day high price, there was an edge in favor of the directional move continuing. Only one indicator is used in this trading strategy, the Average True Range ATR indicator set to 15 days on a daily chart. Everything else can be accomplished with a naked price chart. Monitor daily chart for entry signal, which is a new day high or new day low closing price. Just count 50 candlesticks to the left if you think you see a new high or low closing price.
The horizontal line chart tool can be used to check this in almost all charting packages. The closing price should be higher or lower than all the previous 50 closing prices, not from the highest or lowest prices achieved by the wicks of previous candlesticks. Entry signal : a new day high closing price is a signal to enter a long trade.
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A new day low closing price is a signal to enter a short trade. Trade entry : if you are trading only on the daily time frame which is recommended , a trade should be entered right away after the entry signal is generated. Stop loss : this should be based upon the value of the ATR indicator set to 15 days. Tighter stop losses tend to ensure greater overall profitability although they also lower the win percentage.
I recommend as the best balance between the two a stop loss set to half of the value of the ATR indicator. Trade management: after 2 days from the trade entry, if the trade is still open, move the stop loss to break even. If the market price is worse than the stop loss, close the trade at the market price. Trade frequency: you can have more than one trade in the same direction in the same currency pair at the same time , but as you will be moving stop losses to break even after 2 days, you will not have more than two trades at risk at the same time in the same currency pair.
Exit strategy: you can choose between simply using a time-based exit , which should be between 5 and 8 days the upper limit has historically given the most profitable performance after entering the trade, or some kind of a trailing stop once the price has reached a floating profit at least double the risk. For example, if your stop loss were set at 50 pips, you would begin applying the trailing stop once the trade has reached a profit of pips.
These are the complete rules for my day breakout Forex trading strategy. Beginner traders can trade this knowing that this strategy has performed well in recent years, but should be aware that most trades are not winning trades — you can however expect to win more on the winning trades than you lose on the losing trades. I have allowed some flexibility on the rules for an exit strategy as this is an area where beginners need to do a lot of learning.
Most traders find exits challenging , as they can also be psychologically difficult. Beginners will probably find it useful to start by following a strict time-based exit strategy, but at the end of each day to make a note whether they wanted to exit the trade or not.
Many traders will be surprised to find that they will get better results just exiting after the same number of days each time than by trusting their faith in price action indicating that it is time to get out of the trade. Judging the price movement yourself to trigger your own trade exit signal is very challenging for most people , so this is a good method you can use to practice mentally without harming your trading account.
I mentioned that it is possible to trade this strategy on a shorter time frame than the daily chart. I recommend that beginners start with the daily chart and stick to it, but more experienced traders can drop down to the 4 hour or even hourly chart once the daily chart has given a trade entry signal to try to find a more precise entry. Most traders will find this does not improve their overall performance with this strategy. Another strategy that can be recommended for beginners is a variation on the day breakout trading strategy.
It is the same, with just two changes to the rules:.
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After you get the day high or low close, you wait for another day. If at the end of that second day the day closes in the opposite direction to the breakout, you have a trade entry signal. We can see that when we got a pullback following a daily close at a new day high or low price, there was an edge in favor of the directional move continuing. This edge was even stronger over the short-term than it was shown to be in the breakout strategy , with a stronger expectancy of a positive close the following day.
I have explained elsewhere several trading strategies based upon trading the weekly time frame. This strategy recommends identifying trade opportunities on the weekly time frame and using the 4 hourly or hourly chart to identify an entry signal, which I explained above.