The best scalping strategy works well if you enter the market along with the trend and correctly calculate the size of your take profit.
July 1, 2021, | AtoZ Markets – What is the main beauty of scalping? Most traders are attracted by bright, interesting trading and quick profits. If you are one of them, scalping is your trading method. Scalping is an intraday trading strategy for Forex and crypto traders.
Trades, as a rule, are opened for a short period of time, since the purpose of scalping is not to catch large movements but to find short trades on which you can quickly make money. However, the biggest problem is to be able to correctly scalp, correctly accompany transactions and exit them on time.
If you want to learn it in just a few steps and scalp expertly, this simple guide is for you!
What is a scalping strategy?
Scalp trading strategy is simple and it will not be difficult for you to understand. Scalping is a popular intraday trading strategy. It is a style of trading in financial markets that is based on making a profit through intraday fluctuations in the price of an asset on short time intervals.
For example, after a slow and steady rise, there may be a sharp drop, and if a trader has bet that the currency will fall, he will make a profit. Those who make money on such short-term trades are called scalpers.
Scalp trading requires concentration and attention from a trader. By being alert to price fluctuations, you can quickly close a deal and earn money.
Pros and cons of scalping
Scalping has several significant advantages over other methods of making deals. The main ones include:
- the ability to trade Forex with a small deposit;
- high profitability;
- quick result of forex trading;
- no need to carry out deep fundamental and technical analysis in transactions.
The disadvantages of scalping include:
- increased risks associated with “market noise” on small timeframes;
- limited choice of financial assets (the size of the spread significantly affects the trading efficiency)
- difficulties with the choice of a forex broker (not everyone allows scalping, and those who do not directly prohibit, do not always ensure timely opening/closing of transactions);
- serious physical activity – the density of the work schedule (you have to be at the monitor screen full time) and high emotional stress.
How to become a forex scalper
Scalping is a special style of trading that requires specific skills, knowledge and personal qualities from a forex trader. The scalper’s professionalism is determined by:
- the ability to make trading decisions in a limited time environment;
- the ability to withstand high psychological stress and keep emotions under control;
- the ability to work continuously for several trading sessions;
- competent selection and use of a variety of forex indicators and advisors;
- free ownership of the trading terminal functionality;
- choosing a broker with appropriate trading conditions.
What is the best scalping strategy?
There are different approaches to making money on changes in the cryptocurrency rate within a day for a short period of time. Many traders combine several strategies in their work. Some market participants build on the basis of available tools the author’s schemes of earnings.
Let’s take a look at the six most popular scalping strategies.
A fairly well-known strategy. The system involves the use of 6 indicators at once, with the help of which it is supposed to most accurately determine the point of entry into the market:
- Paramon Scalp;
- Signal Bars 6;
- Fisher Yur4ik;
- EAtrend using i_trend;
- SMA (100) and SMA (200)
Indicators are installed on one chart with the M15 timeframe. The most volatile trading instruments are selected for trading, trades are opened in two directions (bullish or bearish).
The signal for opening a “long position” will be the following conditions:
- the price chart crosses the SMA (200);
- the green line EAtrend crosses the red one;
- the SMA line (100) is above the SMA line (200);
A “short trade” is opened under the opposite conditions:
- the price chart crosses the SMA (100);
- the red line EAtrend crosses the green one;
- the SMA line (100) is below the SMA line (200).
2# MagicStream strategy
This is one of Forex’s most profitable scalping strategies. It includes improving the forecasting of future trends. The downside is that such a strategy is based on stable trends and is much less common than flat that includes fluctuating prices.
You can trade in any market at any time using this strategy. The time frame for this strategy is M5. Also, do not perform more than two operations on the same device.
This strategy should not expect a large number of signals. This is because the data of all parameters collide. Of course, some indicators cannot be taken into account, but in such cases, this will affect the accuracy of the signals.
There are several conditions that must be observed when opening an agreement. First, the price of the device should be higher than the TK indicator. Second, the momentum line must be below zero. Also, keep in mind that the transaction can only be executed after the first candle is closed above the TK. Until then, the signal is not valid. The rules for closing the trade are the same as for purchasing the tool.
3# Two sliding
It is a simple yet reliable scalping trading system with a small set of tools. When trading, simple moving averages (Moving Average or MA) are used, with periods: 20 and 10.
The essence of the strategy is quite original – a position is opened when two MA lines diverge (usually, the signal to enter the market, on the contrary, is the intersection of these lines). Trading takes place on the M5 timeframe, while the key is to comply with the rule – do not hold an open position for more than 1 hour.
The following conditions serve as a signal for opening a Buy order :
- Both diverging lines MA are directed upwards;
- The price curve bounced off the 20-period MA and broke the upper MA 10 line.
Sell order is placed otherwise when:
- Both diverging lines MA are directed downward;
- The price curve will bounce off the 20-period MA and break the lower MA 10 line.
Take profit and Stop loss are set at a distance of 10-15 points from the market entry point.
The main advantages of the strategy are its simplicity and low number of false signals.
4# The 5-Minute strategy
This is considered a profitable and simple scalping strategy in Forex. As the name of the system shows, trade is conducted in the US dollar and euro.
Before purchasing a financial instrument, you must meet three conditions. First, the price must break the BB line from below and cross half the distance to the blue line. Second, the RSI must be above or above 70. Third, the stochastic must be at least 80 level and distributed.
To sell the currency, the opposite conditions must be met. This means that the RSI must be below the 30 level and the stochastic is not above the 80 level, meaning the blue line should cross the red from below. The last case is that the price line crosses the BB line above and lies between the blue and yellow lines.
Both trades (buying and selling an asset) are closed at a time when the price reaches the red line in the center. This line is common to three pairs of Bollinger bands. In addition, attention should be paid to the absence of stop orders. If the position is already open and the price continues to move in the opposite direction, if the value of the financial instrument is in the middle, between the blue and red lines, the order should open in the same direction.
The strategy is based on two well-known indicators: MACD and EMA with a period of 20. The system is suitable for most volatile trading instruments.
Trading is carried out on the M5 timeframe. When the MACD crosses the zero line and crosses the EMA price curve from the bottom up, the trader waits for the chart curve to move 10 points away from the moving average and opens a buy order.
Again, when the MACD crosses the zero line, and the price chart passes through the EMA from top to bottom, after waiting for the price to move 10 points from the moving average, the trader must open a sell order.
When placing orders for this trading system, it is imperative to limit losses. Stop loss can be set at the level of 3-5 points from the lot buy/sell price. Take profit is placed at a distance of 7-10 points.
It should be noted that many fairly popular trading advisors have been written on scalping strategies. The most famous of them:
- Wall Street Evolution is a trading system whose algorithm assumes trading in a price band. Losses are limited by automatically placing Stop loss, and profit maximization is achieved by replacing Take profit with Trailing stop. It is used on the M15 chart with EUR/USD, GBP/USD, and USD/JPY;
- Best Scalper is a very popular Expert Advisor. Its principle of operation is based on the “Night scalping” strategy, that is, trading is carried out at night. Most scalping trading systems require a lot of volatility in the market, but the opposite is true. Trading is carried out in a low-volatility channel, which is identified by the robot on its own based on built-in indicators.
6# Glass scalping
Sometimes this trading method is also called classic. In order book scalping, the trader relies on information about the buy and sell orders received in the order book, observing their ratio. An experienced scalper is able, based on the predominance of certain orders, changes in their number at certain levels, and the appearance of an imbalance between supply and demand, to determine which direction the price should move in the short term with a greater probability.
Reading information from the order book is one of the most important skills for a scalper, since the consolidation of orders at one price may indicate the appearance of a short-term resistance level, and their execution – about the impending breakout of this level, at which the cherished movement of several points can be caught.
How to set stop loss and take profit in scalping
Taking profit and loss is the most painful topic in scalping. In a couple of minutes, the price can go up and down several times. As a result, beginners correctly predict the direction of movement but lose money on stops.
When setting a stop loss, traders follow one of the following tactics
- Trade without stops. An extremely dangerous option that still occurs in articles and forum discussions. Adherents of this tactic insist that the scalper should close the position based on the current market situation. But most experienced traders agree that trading without stops always ends in losses since a sharp price change in seconds squanders a huge part of the deposit – and such movements happen regularly.
- Fixed stops in points. For example, a trader can close a trade if the price moves 5 pips in the opposite direction.
- Stops in points, taking into account the strength of the trend. Unlike the previous approach, the trader calculates a stop loss based on the previous move. For example, you can set a stop at 50% retracement along the Fibonacci lines.
- Setting stops by levels and extremes. In this case, the trader places the stop loss behind the support/resistance line or the nearest local top/bottom.
With the exception of trading without stops, each of the above tactics has a right to life. When choosing a specific approach, one must proceed from the peculiarities of a trading strategy. For example, if a trader only scalps a breakout or bounce, you can place stops along the support and resistance lines. At the same time, for trading with the trend, it is more convenient to use fixed stops in points.
Setting take profit also depends on the specific strategy.
In most cases, the following options are used
- Fixed profit in points.
- Profit calculation in accordance with the previous movement (Fibo).
- Setting take profit near the local level or extremum.
- By indicator signals.
The best currency pairs for scalping
The higher the liquidity, the better the pair is suitable for scalping.
The choice is limited to a relatively small number of tools
- Sometimes other pairs from the FX Majors category are also suitable – for example, AUDUSD.
Scalping on exotic pairs will not work: too large spreads overlap any profit.
Best time to scalp
Almost any time of the day or night is suitable for scalping, but each session has its own characteristics.
Trading hours can be conventionally divided into the following groups
- The quietest are the Pacific and Asian sessions. Sharp movements during these hours are rare, so you can ride the waves of local trends without fuss. The best time for beginners (and just as good for professionals!).
- The most turbulent are the opening of the London (10:00) and US (15:30) sessions. This watch is dangerous for beginners as it often gives off powerful but unpredictable impulses.
- The most intense – the US session from 15:00 to 23:00. At this time, the main economic news comes out, which dramatically affects the exchange rates. The most difficult time to trade, but experienced traders can still take risks and make good profits. Use the economic calendar to keep track of important news .
The worst time to trade is the closing times of the London (18:30) and US (23:00) stock exchanges. At this point, many intraday traders close their positions, so the market becomes chaotic. It is almost impossible to make sense of this noise, so it is better to just stop trading 10-15 minutes before the close.
How profitable scalping can be
Scalping profitability depends on the number of transactions, their volume, and efficiency. As shown in the example of trading on the news, sometimes in a couple of hours you can earn + 15% to the invested funds. If a trader has managed to carry out several such transactions, his income may turn out to be significantly higher.
To increase earnings on scalping, experienced members of the crypto community are advised to combine strategies – this increases the chance of finding a favorable moment to enter the market.
Scalping risk management
Unlike positional trading, risk management in Forex scalping does not require the implementation of money management rules – limiting the volume of open positions to 2-3% in relation to the total amount of the deposit.
To get profit from Forex transactions, the scalper significantly expands these boundaries. To minimize risks, stop losses and an adequate level of leverage are required. A prerequisite for scalping is the presence of a stable high-speed Internet and the ability to give orders to a broker over the phone.
Best scalping strategy – Conclusion
Scalping is in steady demand among both novice traders and Forex professionals. The capabilities of this strategy allow a person who can quickly analyze information and charts of digital assets to quickly build up capital on small deposits.
Moreover, this type of work is associated with a number of risks. You can increase the safety of trading through regular training and the constant expansion of the knowledge base.