Scalping presumes gaining small profits at small price changes with effective positioning at short periods of time. The fact that risk is rather small due to short intervals, that is, it is easier to convince yourself to be more careful makes an advantageous point for those who want to go for smaller but safer trades.
Scalping in forex :
1) Based on Micheal Boutros, forex scalpers should risk around 25% of Daily ATR and it is for example 25 pips when currency pair has Daily ATR 100 pips.
2) When you create scalping strategy – trader need to have several triggers. For example – trend traders need to follow trend, oscillator needs to show breakout/trend, price action need to be on your side etc., important Fib. level price need to break etc.
In order to scalp successfully, it is necessary to make sure whether the market is range market, breakout or trend market. The market is – as it is obvious from its name – bound to ranges, so when the price moves, it touches the boundaries that represent the point of overselling or overbuying. So when the prices break through the boundaries and continue to evolve around the position above the boundary, it is called breakout market. Overall position of the price for a certain period is a trend. So it can go up or down, and the time of the price spent in a certain area of value is ranged, and if it breaks through several times in a certain direction, it means that trend is going somewhere – up or down. So, you have to know which position of market you are considering to evaluate and analyze when preparing to do some scalping.
Next step is to decide on currency pairs that you want to trade. That you do upon considering the cost per trade you do. The cost may vary based on average spreads which will also include deposit, equity, and the amount to be traded. So, anyway, you must know what you will have to pay for the trade to be executed. As the spread is lower, the costs are lower.
For having a successful scalping, checking of liquidity in order to know how easy you can enter and exit the trade is important. Volatile markets may have certain gaps between trades. Liquidity during holidays changes, because there are statistically less trades being executed during that period.
Defining time frames that show how the market moved in a certain period of time. If you are a scalper, you should consider weekly movement in order to see short term direction of the market. When you have this time frame, next move is to determine how many positions you want to have daily in order to know what chart to analyze. If you want to have up to two positions, you should consider half an hour chart. The more positions – up to five – you want to operate with, the chart with less minute display you need have.
Defining pivot points for getting an overall picture of the part of the market you are interested in. For discovering pivot points there are more methods and formulas, but for scalping you should set pivots by using highs and lows as boundaries of support and resistance. Also, you can have moving averages to be the pivot points as shown in this chart……
When you want to start trading range markets after you have set your boundaries, you can set your entries and exits.
As you have set your support and resistance levels, you can trade breakouts. A false breakout after the pip breaks the line of support or resistance might lead you to set a trade, but it is better to wait a quarter of an hour in order to see how the candles will move. The occurrence of a false breakout is seen in the graph.
Trading upon trends means that if a trend is going up, you wait for it to dip down a bit in order to buy and wait to move up again to sell. Or when the trend is going down, as soon as it reaches the resistance line, you place a stop-loss. Also, when the trend is going down, you wait the first jump to buy and wait more to rise again.
Setting risk management is something a scalper must have prepared before going into a trade. Finding framework, as mentioned above in the first few lines is essential for many reasons, and now for having a clear spot to place a stop loss.
The rule of 2% will ensure the minimum loss to be not greater than 2% but the reward will also be a minimum of2%. It doesn’t mean that the reward will be maximum 2%.