Scalping is a trading method that involves analyzing and forecasting price movements in order to place profitable short trades. The aim is to make small profits within few seconds or minutes at any session within a trading day.
Scalping is risky. Some trading systems may not be appropriate for you as a trader.
It gives traders opportunity to make big profits within a trading day. Scalpers work with high leverage (say 100:1 – high leverage allows opening of multiple positions) to make the best use of the scalping system. Profits are accumulated in high volume when multiple trades are placed at the same time.
For example, if a trader place 10 trades, with a target of 5 pips per trade and for every pip the trader makes $1, that will be a total of $50 profit at a time. Let’s say the trader repeats the scalping process 10 times for the day, the result will show a total of $500 profit for the day.
With the use of small time-frames (1min, 5mins, 15mins, 1hr, and 4hrs) a scalper must be able to carry out a quick analysis of the currency pair; volatility of currency pairs, identification of trend using trend lines, analysis of support and resistance zones and identification of price breakouts.
Traits of a Scalper
A scalper is confident of his or her short-time technical analysis of price movement. He or she is a quick thinker who has fast fingers. A scalper does not over-analyze currency pair charts or hesitate once the scalp-trade is identified.
Scalping is not for the analytical trader as scalping is mostly done on the current market conditions. Scalping requires significant focus and attention on market movement. Scalpers have a very short time to wait for confirmation of trade entry (decisions are made quickly to avoid missing the trading window).
The right time to scalp is when;
-the price is range bound
-there is a price breakout from the range
-volatility is high due to news release
-candlesticks such as pin bar, engulfing bar, inside bar e.t.c form in favor of a trend or on a level of support or resistance.
Do’s and Don’ts of Scalping
-Have a trading plan to control loss and stick to it.
-Try scalping on a demo account until you are able to make consistent profits
-Use few indicators, do more of price action and watch out for breakouts
-Learn to trade the news (high impact news), using the economic calendar
-Scalp during the busiest time of the day, when volatility is at the peak
-Focus only on the most liquid currency pairs that have the highest trading volume with tight spread (for example EURUSD, GBPUSD, USDCHF, AUDUSD, NZDUSD, and USDJPY)
-For beginners, focus on one currency pair at a time
-When you are ready to go-live, start with Nano or Micro trading accounts
-Keep your lot size very small (use the smallest lot if possible till you become a professional)
-Go for small pips (2 to 10 pips)
-Use stop-loss (say 30 pips stop-loss) to reduce your risk (don’t use tight stop-loss)
-Don’t scalp with an under-capitalized account (it leads to over-exposure of such account).
-Be disciplined with your start and stop time for scalping and know when to stop/close for the trading day.
How to Scalp
-Scan the higher time frames (Monthly, Weekly, and Daily) for an overview of the currency pair trend
-View the economic calendar for fundamentals (scalp shortly after the release of high impact/medium impact news)
-Use small lot size and ensure your trading account is not undercapitalized
-Enter scalp trades on lower time frames (4hr, 1hr, 30mins, 15mins and 5 mins)
-Place scalp trades after a spike (sharp price rejection/reversal) extends out of Outer Bollinger band
-Trade when there is volatility/when trade volumes are high/when the currency pair price is moving quickly in one direction
-Enter scalp trades when price breaks out of range/consolidation
-Book small profits per scalp (2 pips to 10 pips)
-Avoid tight stop loss (stop loss of 30 pips to 50 pips is recommended)
Now here is a short video of compiled screenshots of catching a spike out of Bollinger Bands. The logic is, as price breakout of the Outer Band, it is rejected at some point, (at the point of rejection, spike catchers jump in for a ride – few pips (between 2 to 10 pips) are booked quickly with fast fingers).
If You Must Scalp
Have a plan for the day. Develop a strategy. Maintain a start and stop time for the trading day. You must develop fast fingers. Don’t stare at the chart all the time (occupy yourself with some activity e.g reading e-books on Technical analysis, exercising e.t.c).
Scalp like a robot/EA (maintain good concentration and attention to details, no emotions, no over-trading, stick to the principle/rules of scalping). Don’t use under-capitalized account. Be patient.
Hedge losing scalp trade with a counter trade and be on the alert to close your hedge trade in profit should price retrace to your initial trade. Learn more on scalping strategy.
Below are images of scalp trade results on an $80 account. This is to prove that with patience, focus, consistency, and contentment you can make good profits in the Forex World through scalping.
Don’t attract or join the get-rich-quick scammers out there. People are making good profits in the Forex World. Try to be one of them!