Have you been considering becoming a day trader? Then, you might want to look more into the best day trading strategies. This article will teach you the basics of scalping — one of the most popular day trading strategies. You will also learn what indicators to look for before entering a trade. So read on!
Table of Contents
What is a Forex Scalping Strategy
As the name suggests, you scalp or scrape small profits off short-term trades. By multiplying the trading activity, you then build up your overall profit. Instead of making one trade throughout the day, a scalping trader could make over 100 trades during the same period. That’s because a usual day trade could last for hours, but a scalping trade would be concluded within a minute or two.
As a result, scalping is more suitable for aggressive traders comfortable with making quick decisions but can also remain calm at the same time. Experience and research also play a significant role in helping a scalper identify the right timing to make a trade.
1. Scalping Best Practices
Similar to other strategies, there are best practices you can follow for better trading efficiency.
2. Currency Pair
Utilize a currency strength meter if you need help to determine your currency pair. Because scrapers focus on quick trades, they typically prefer volatile pairs. You also want a currency pair with high trading volumes to maximize profitability.
Focus on peak hours if you’re a scalper. That is when you can capture the most price changes and “scalp” most of the price differences. Keep in mind that each economic center with the most active forex market has its schedule. Therefore, when identifying the right time to start trading, make sure you look across time zones.
4. Brokerage Platform
Finding the right broker is always crucial to becoming a successful Forex trader. Scalping has a higher technical requirement for the brokerage platform you use because you need to respond quickly to the market trend. If you can find a broker that functions cross-platform from PC to mobile, that should be your best choice.
Scalping relies heavily on technical indicators. A forex scalping strategy often focuses on the short-term, and one of the popular variations uses two moving averages (MA) to determine the entry and exit points.
- the 7-period MA, and
- the 14-period MA
An MA is an indicator representing a currency’s average closing price in the market over your chosen timeframe. It helps you predict the market momentum and identify when to buy or sell.
In the example above, you determine whether to buy or sell by the relative positions between the 7-period MA and the 14-period MA. Additionally, you will also need a stop-loss to limit your losses.
Once again, a forex scalping strategy is not for everyone. If you are prone to anxiety, scalping may not be the best idea for you. However, if you believe you can remain calm while making fast, accurate decisions, scalping could be far more profitable than other day trading strategies. If you’re unsure about scalping, test it out with a demo account. Be brave and keep your composure. You’ll do just fine.