Forex trades who have the benefit of experience will have observed that forex brokers can provide different market quotes for the same security at the same time. This can be due to flagrant manipulation on the part of brokers, but there may be other factors at play. The quote feed might experience delays, or quotes might go through smoothening, etc. Whatever the reason, differences in the reporting of quotes create a trading opportunity for arbitrage traders. Arbitrage trading makes money by exploiting the difference between the delayed quotes of one broker and the more timely quotes of another. In an example of classic arbitrage, also known as two-leg arbitrage, a trader would find two brokers that show different quotes (i.e. prices) for the same security. The trader would then simultaneously enter a buy order with the broker displaying a lower price and a sell order with the broker that shows the higher price. The trade will be profitable if the money that the trader makes from the difference in the two quotes exceeds the trading costs, which is the commission charged by the two brokers, as well as the spread. With this type of trade, the trader is not exposed to either risk or drawdowns. If the trader finds that one dealer always lags another dealer in terms of quotes, then one-leg arbitrage is preferred. One-leg arbitrage involves drawdowns. However, it also offers a greater profit potential.
What makes arbitrage possible in the first place is that one broker’s quotes fail to keep up with the same quotes of another broker. This could be due to delays that occur when quotes are relayed from a liquidity provider to a trader via the broker’s server. Quotes may also be subjected to filtering or smoothening when they are transmitted through the broker. When that happens with a security whose price starts to swing, there is a delay between the real quote of the security and the quote that the “slower” broker reports to traders’ terminals. An arbitrage trader would proceed to place an order through the slower broker with the lagging quote in the direction of the quote of the “faster” broker, provided that the difference between the real quote and the delayed quote can cover the trading costs and also net a profit. This gives the arbitrage trader a constant advantage over traders who avoid arbitrage, enhancing the trader’s profitability and rendering it more stable.
One-leg arbitrage does not make use of hedging. Unlike with classic (two-leg) arbitrage, one-leg arbitrage traders have no need of hedging their positions with the “faster” broker. The profit will be made with the “slower” broker, and hedging will expose the trader to additional, and unnecessary, trading costs (the commission and spread on the trade).
To be effective with arbitrage, it is necessary to find a source that will provide real quotes faster than lagging brokers. Although you can simply find a broker that has a speedier way of transmitting quotes to your terminal, the best thing to do is to use the market quotes of large players, whether banks or brokers. Examples are LMAX and Saxobank.
There is great disparity in the frequency of arbitrage opportunities. Depending on the susceptibility of a broker to delays in its quotes versus actual, “real” market quotes, arbitrage opportunities may present themselves 10-50 times daily, or no more often than once or twice a month.
A popular misconception circulating online is that arbitrage trading no longer makes sense, mainly because arbitrage advisors trade so quickly that they can be immediately identified by brokers, which then refuse to cede arbitrage profits to the traders. This prevents profitable arbitrage trading. As brokers tend to discourage arbitrage traders by requiring that traders hold their positions for a minimum period of 1-3 minutes and are able to annul all non-compliant trades, there is nothing to be gained from using arbitrage trading – or so goes the argument. While true, there is actually no need to close your position in less than a minute. If you wait long enough, you will not annoy your broker. Our own trading experience has shown that you will experience no issues with a broker if you hold your arbitrage positions for a period of at least 10 minutes, and you will be able to pocket your profit.
How can an arbitrage trade be profitable if you sit on your position for 10 minutes? It’s simple. An arbitrage order automatically gives you a modest advantage. The direction of the price, once the lag between the prices corrects itself, is a matter of uncertainty. However, if you place a lot of orders, half of your trades will be profitable, wherever the price goes after the correction of the price difference. The law of large numbers will do its job. The profitable half of your trades will offset the other half that is unprofitable, which should ultimately give you a small advantage. When these small advantages build up, they will make your profitability more stable. Your average trade profitability will be intact. It will also lead to an increase in the account drawdown level, so you will need to keep that in mind when you determine your lot sizes. Of course, this is only applicable when you are working with a large volume of trades.
As can be seen, it is not yet time to bury forex arbitrage. It is still very much a high-profit investment strategy.
The term Forex is related to the international currency market wherein interbank transactions take place on a global basis. Here people involve themselves with various transactions such as commission deals with various currencies of various countries as well implementation of successful transactions related to foreign exchange. The present day forex market is one sort of telecommunications network wherein one can find participants related to both physical and legal people. In the foreign exchange market one can witness millions of transactions taking place in the currencies of different countries throughout the world through the method of auction. In this market one can find the use of the term forex arbitrage.
Now people who involve themselves with foreign exchange market should know about forex arbitrage. The word represents a particular, specific algorithm for a financial transaction. The above process enables one to earn income from the resale procedure related to currencies. In order to earn the profits one should take into account the exchange fluctuation rates that take place during the whole day within the different markets as the rates change every one or two hours. Moreover, people who do the business knows that there are several types of forex arbitrage. Hence, one should be aware of the various types so that one can take the necessary action.
There are various types of Forex arbitrage namely Temporal Forex arbitrage which refers to the difference in the rates of the currency pairs at varied times during the trading day which is a common feature in the Forex market. The second type is the Cross Forex arbitrage which refers to the operations carried out based on the principle of simultaneous synchronous changes in the rates of exchange in two pairs of units. Differences in the rates enables the traders to earn profits out of the trading carried on in a particular day. Traders show their interest on transactions related to dollars, pounds and euros.
Traders dealing in Forex are well aware of Interbourse Forex arbitrage which completely relies on the differences in exchange rates, which one can find in the various stock exchanges but one finds to conduct the trade activities based on the existing conditions which become a difficult and complex process. Forex arbitrage can be either simple or complex, which completely depends on various factors. As far complex forex arbitrage a trader needs to monitor the dynamic factors of the rates of exchange of the participating currencies in the auction procedure. In order to conduct the transactions in a successful manner one should know the facts related to forex arbitrage.
There are two options available when one wants to conduct forex transactions. In the first place one needs to indulge themselves either in selling or buying foreign currencies. In order to be successful in the deals one should opt for implementation of the various procedures involved in the particular transaction. Traders are expected to sign the contract which comprises the terms and conditions along with the type and the mandatory provisions related to the various currencies that one deals in with,
People who do the business of forex market should know the various trading strategies which depend upon various factors. Traders are expected to use caution and be alert so that they can make money in the forex markets which are always a fluctuating one. Nowadays, in order to know the conditions of the market and how to make successful deals one can well use the automated software to help them with forex arbitrage trading. Since the rates change every one, second one should be correct in their judgment which can be made with the various tools available on the internet.
There are many techniques scalping on the forex market. And probably scalping is probably the most popular form of trade in the forex market. This happened because scalping allows the trader to get quick profits in a short period of time at low risk.
Is this true?
Usually scalping technic fans open accounts with high leverage (1:200 and higher) and open positions with a large lot size. Also, when the size of the take profit is almost always smaller than the stop loss. In this case, a series of several unsuccessful trades can lead to large losses.
Forex scalping strategy also very sensitive to the time of order execution and spreads. For this reason, successful scalping depends on properly selected broker. A broker can easily destroy scalping strategy, increasing the spread at the time of opening or (and) closing the order or increasing the latency of execution of the order. Ie, from the above it is clear that such strategies also have their risks.
How to reduce the risk of scalping strategies?
Reducing Stop Loss size
Solution follows from the above analysis of the risks. In order to reduce the size of stop loss is necessary to refine the entry point. The most effective method is the use of arbitrage tactic as determined the beginning of the price movement at a faster feed. For example you can use FIX API connection to fast broker.
Increasing take profit level
The use of a short trailing stop loss, will help to earn more pips from each order.
Open account with broker with low spreads.
Our company began developing a professional arbitrage software between two Fast/Slow brokers via FIX API protocol two weeks ago.
Fast broker is LMax via fix api
Slow brokers: any MT4 broker and two brokers via FIX api. read more
We can take a look at the short position forex scalping system which is the total reverse of the long position tforex scalping system. We will assume that the parabolic indicator is situated above the candles on all of the other charts (60, 5 minute) and below the candles on the day chart.
We can look at the graph in picture 2 and we should do the following under these circumstances:
1) From our analysis we should ignore the day chart
2) Analyze the 60-minute chart and the following time charts in descending order
3) Spot the resistance and support levels and make sure that we do not buy next to the resistance or sell next to the support
The circled areas are when the parabolic indicator ‘comes out of its shell’. 20 points is the minimum distance to the support level and 25 points is the minimum distance to the resistance level.
A ‘bearish’ trend line is built. Analysis of the graph is shown in picture 3. Number 1 is a selling signal, 2 is a buying signal, 3 is a signal for closing a short position and number 4 signifies the closure of a long position. When there is a ‘bullish’ trend line and the parabolic indicator is placed above the candles there may not be any more dynamics.
Stochastic should be situated in the overbought zone or close to it as per the 60 minute chart
1) The ‘bearish’ character of the trend is due to the parabolic indicator being above the candles and the presence of the parabolic indicator’s ‘protection’.
2) MA with periods 4 and18 has formed a ‘dead cross’ or something similar
3) The signals of the parabolic indicator is confirmed by DMI and selling is initiated
4) The value of RSI has a value of no les than 50
5) A signal to sell is provided by MACD
6) S.Stochastic initiates selling and is not situated in the oversold zone. A 60 minute chart is still long enough for intraday trading so traders should not be worried if these conditions are not observed.
A trader will conclude that the tool for ‘bearish’ trades is the 60 minute chart from everything mentioned above. Using the same criteria 30 and 15 minute charts are analyzed simultaneously. Of equal importance is the protection of the parabolic indicator. If this condition is not seen then traders will need to get hold of more information associated with the convergence availability and the candle reversal figures that might warn of an upcoming ‘retracement’. Due to the risky nature of placing trades when these signals are around, any trades should be paused while we wait for the ‘retracement’ to pass.
As long as trading principles aren’t contradicted by analysis of a 15 minute chart a 10 minute chart is analyzed and the same procedures are performed.
In this case it is important to pay attention to the behavioral pattern of Stochastic. This indicator shouldn’t be situated in the oversold zone
The Stochastic should be outside the oversold zone from 15.11 to 16.21 on the 10-minute chart in this example. The next steps are exactly the same as the previous charts with analysis of a 5-minute chart. The following sale conditions should be observed:
1) The Stochastic should be outside of the oversold zone
2) The parabolic indicator must be protected
3) There is a downward incline to the moving averages
Only if analysis of all the above-mentioned charts points to the possibility of successfully opening short positions will we move to a 1-minute chart model and set an entry point.
It is important to wait for when Stochastic is in the overbought zone or close to it. The parabolic indicator should be situated under the candles. When this happens a trader can signal a broker to sell.
The Order of Closing Positions
There is an exact opposite process for closing positions. The trader will start off by analyzing the 1 and 15 minute charts. First of all the short term charts are analyzed (indicators) and the closing positions are reveale. The ‘bearish’ direction of the 65 MA period changes and is horizontal and MA 18 attempts to form the ‘golden cross’.
The conditions that must be observed when selecting the exit point of the market are the numbers 1 – 4. As per number 3, the behavior of the MACD should concentrate on buying, the S.Stochastic is placed in the oversold zone and exiting should be initiated.
Signals to buy from DMI The parabolic indicator should be situated above the candles and it is no longer ‘protected’ or is close to the area of ‘coming out of its shell’.
There will sometimes be the start of the retracement or a reduction of indicators. Whether the retracement would be within the 1 minute chart and so be classed as short term or deeper is not known by the trader. Switching to the 5-minute chart will determine the character of the retracement. Short-term retracement signs are:
1) Protection still surrounds the parabolic indicator
2) MACD direction is not towards buying
3) There is no support level
4) The possibility of a reversal pattern is not signaled by the Japanese candles
5) Indicators do not detect convergence
The signs of ‘depth’ are:
1) The ‘protection’ of the parabolic indicator is absent
2) Indicators detect convergence
You should close a trade should a depth of retracement exist. Otherwise any floating profit could be partially or totally lost.
Before we explore what makes up the best scalping indicator, we can understand what scalping means. Scalping is s style of trading where dealers set a specific price target and stop-loss order across a small period of time just to garner a swift gain. Deploying the best scalping indicator give the ‘scalper’ the ability to carry out a high number of traders by hanging onto stock for a brief time before selling it.
Using the best scalping indicator should can yield a small profit per quick sell.
A ‘scalper’ will look to lessen any possible losses in addition to any risk by giving up the possibility of big profits by searching for lots of small ones. This can also lower the chances of turning into a big price reverse. This method is different for that which looks to improve the overall value of profitable deals while letting other ones reverse; despite the gains being bigger they’re not as often. It’s quite common to now use the best scalping indicators to scalp the forex market.
The speed at which both exit from the market and small gains are made is often within minutes – is what makes this attractive. Scalping has three main points:
Because the deal has only a momentary exposure to the market, risk is reduced as is price reverse likelihood.
Most movements in price are quite small irrespective of conditions in the market , so there is a greater chance of profit even though these profits will be smaller.
As these price movements are small, it can be much easier to get the smaller profit chances. E.g. a stock can see a price change of 20 cents a lot easier than $20
The biggest gap between entry and exit points normally occur in the best scalping indicators so boosting profits.
This is useful due to the short term nature of the dealing. To undertake scalping effectively, you need to make use of the best scalping indicators to increase your chances ahead of others in the market. Here we can take a look at the best scalping indicators that you can work with.
You may find that these aren’t the best scalping indicators for you even though they are some of the most common
It’s important to point out that even though they are regarded as some of the best scalping indicators, they each have a different role which could improve your chances of profit.
But even the best scalping indicators can’t give you a guarantee that you will profit as trading is all about probability not certainty.
These are some of the best scalping indicators
Parabolic SAR – The SAR is a tool that gives a sign either to move into or out of the market. Join a trade when the SAR goes in your favour.
Likewise, when the SAR goes over to the other side from that you have backed, you leave the trade. Stochastic indicator: this instrument will deny a low winning probability deal by preventing a buy when a stock is overbought. This is one of the best scalping indicators as it can help us to increase the chances of dealing accuracy by setting out the existing market scenario. At the point this indicator gets to overbought or oversold and reverses, prices will return to where they were and so this is the time to ‘scalp’ the price movement.
This can be one of he best scalping indicators as it can predict a market recovery.
Pivot Point: Support and resistance are vital signs for a scalper. As a price nears resistance or support, it becomes more likely that the price will turn the other way. This is the sign that scalpers will look for. A daily pivot point can reveal the major resistance and support as well as the previous highs and lows can. Why this is one of the best scalping indicators is down to it being used by professional dealers and so it increases in importance.
Pivot Point Repulsion
Once the price starts to get towards the pivot level, the stochastic and SAR should be checked for entry points. In addition to using the best scalping indicators, a key point when scalping is to allow a convergence of events take place before you deal. Even using the best scalping indicators will not make you profits unless you can allow this to take place.
To make at least 50 points a day you can use an excellent Forex strategy called ‘The Puria Method’. But the system doesn’t work as well for all currency pairs due to its own specifics. Let’s investigate the subject of choosing the take-profits and instruments. The amount of points per day made won’t be huge but you will get a constant profit and you can make a decent amount of money within one month.
A forex broker that can provide the Metatrader 4 trading platform and is trustworthy should be used when operating this forex scalping strategy.
Description of Forex Scalping Strategy ‘The Puria Method’
You will find that profitable signals often shows on the listed currency pairs when you use ‘The Puria Method’. Moreover, we’ve stated the size of take-profit and the suggested timeframe for each instrument:
AUDJPY – M30 – 15 pips
NZDUSD – 1H – 25 pips
USDCAD – H1 – 20 pips
EURGBP – H1 – 10 pips
USDJPY – M30 – 15 pips
GBPUSD – ’30 – 20 pips
USDCHF – M30 – 10 pips
EURCHF – H1 – 15 pips
AUDUSD – M30 – 10 pips
EURJPY – M30 – 15 pips
CHFJPY – 1H – 15 pips
CADJPY – M30 – 20 pips
EURUSD – M30 – 15 pips
‘The Puria Method’ as is common with a number of other forex scalping trading strategies, will need the currency pair chart to be adjusted. The following indicators should be placed to start with:
A moving average (MA) that has a period 85 with Low applied. You should choose the linear weighted moving average. The dark yellow line on our chart is the MA
MA (moving average) with a period 75 applied at Low. You are to select the linear weighted moving average. The blue line on our chart is the MA
MA (moving average) with a period 5 applied to close. The exponential moving average should be chosen. The MA is shown as a red line on our chart;
Parameters of 15, 26, 1 for the MACD indicator
All of these indicators can easily be found in the Metatrader 4 trading terminal. You should always go for a reliable forex broker as some dealing centers will not allow profit to be made, meaning you re wasting time with profitable forex strategies.
Rules for Opening Trades
A sell trade should be opened up when the red MA crosses the other two MAs from the top downward with the MACD indicator providing a signal of one bar closing beneath the zero line. For a buy trade, the conditions are the exact opposite.
Like all free forex trading strategies, unless you follow all of the rules to the letter, ‘The Puria Method’ will not be profitable. One essential condition is placing a stop loss, the maximum value of which shouldn’t exceed 14 points. more forex scalping strategies….
Should the rules be followed properly, ‘the Outsider Method’ although a simple forex trading systems like a lot of others, can be profitable.
It is best to use it on the GBPUSD currency pair but you can try using any other instruments too. A reliable forex broker that provides access to the Metatrader 4 trading platform should be used for this forex scalping strategy.
Description of Forex Scalping Strategy ‘The Outsider Method’
To start with, using the 15 minute chart on the Metatrader 4 trading platform, you should place an exponential moving average with period 9 (EMA 9). If you want the signals of this Forex trading strategy to be profitable, you should fulfill the following conditions:
Neither the body nor the shadows of the last candle should be contacting EMA 9
An ideal variant is when the maximum or minimum are at a distance of about one point from the moving average
The candle close price should be higher than the last maximum (in case of a buy trade) or the last minimum (in case of a sell trade)
When all these conditions are met, a buy trade can be opened (the candle is over the EMA 9) or sell trade (when the candle is under the EMA 9.
Take Profit Rules
As well as many other Forex trading systems ‘The Outsider Method’ requires placing the stop-loss and take-profit immediately after opening a trade. Stop-loss is to be placed on the minimum (in a bullish market) or maximum (when there is a downward movement) from the earlier candle. If the price is in close proximity to the stop-loss it can be moved to above or below the previous candle. When placing a take-profit, do so using a distance of the previous candle’s size. When the prices makes a swift move in the correct direction and moves past 20 points having opened a trade, a position should be transferred to break-even. learn more
The basis of this scalping strategy comes from the Grebenshikov principle and this is also seen in ‘Forex and We’. In size terms this strategy is more like megascalping. Megascalping using the Grebenshikov principle uses the EUR/USD currency pair as its main instrument, different currency pairs can be used. A reliable forex broker that offers Metatrader 4 should be used with this forex scalping strategy.
Description of the Forex Trading Strategy
Use the Bollinger indicator that all trading platforms, including Metatrader 4, will have to enter the market. When there are parallel lines showing on the Bollinger indicator, you can place Buy stop and Sell stop orders at 20 pips above and below the horizontal channel borders. Any timeframe can be used. Before placing pending orders it is sensible to perform technical analysis using higher timeframes. As an example, using H1 to place orders, D1 should be looked at beforehand. Were the price to be next to the upper channel border using the day timeframe, we place only the Buy stop (and the opposite for Sell stop). A stop-loss can be placed 20 points below the opposite channel border.
Transaction Support According to the Trading Strategy
There are two scenarios once the pending order has been activated:
Should a profit not hit 25 points and so closes on a stop-loss or the transaction is not profitable. At this point, when the trend reverses, the same principle is used to place a sell stop order as that used when placing a buy order earlier. I.e. the closure of a position that is long and then open a short position straight away. This will also have these same two scenarios.
The opened transaction brings an immediate profit. Breaching the 25 point barrier moves the transaction to break-even. A trailing stop is then used if the price moves on in the right direction.
Using the 4 hour chart, you can place pending orders at 20 points over the maximums when looking to open up further positions. Following the summary stop for all positions inn area that is ‘positive’ or in a break even position orders can be placed. This is for safety reasons due to the volatility of the forex market. A further variant would be the only open transaction shifts to break-even at the 25 point level. Stop-loss or trailing-stop are when profit taking occurs. And last of all, because of the volatility of the market, you must ensure that you have a well-designed and comprehensive trading scalping strategy when trading forex.
This strategy is very simple and is used in forex trading without needing any indicators at all. It can also be a profitable one at the same time. There are a lot of free forex strategies and a lot of them will use Alexander Elder’s Triple Screen Trading System.
This is our strategy too. Combining this easy trading strategy with the appropriate money management approach can yield good profits. You can then trade using whichever currency pairs you would like. To use this forex scalping strategy you should make a point of selecting a trustworthy forex broker that offers the Metatrader 4 trading platform.
A Description of a Simple Forex Scalping Strategy
All you need to trade with this simple strategy is to follow these three rules:
Use the M5, M15, M30 and H1 timeframes to check candles
If all four timeframes are showing white candles then you can open up a buy transaction
Sell transactions can be opened if there are black candles on all four timeframes
An example of the forex strategy is in the picture below:
Using the Simple Forex Scalping Strategy
The Metatrader 4 trading terminal needs to be prepared to use this Forex trading strategy. The same currency will need to have four windows made for it (see picture). To arrange the chart you will need to click on ‘Window’ followed by ‘Tile Vertically’. Once you have done the preparation, you should wait for a signal to open the transaction.
We can describe the transaction opening process in detail:
At 3:00 on the H1 timeframe the candle was opened and it was black by the time it closed
Now we see that at 3:30 on the M30 timeframe a candle was opened and it was also black when it closed
On the M15 timeframe, the candle that had been opened at 3:45 was also black upon closure
Finally, the M5 timeframe has a candle opened at 3:55 and this was black
This shows us that the conditions for this forex scalping strategy were achieved and so we can open up buy transactions based on the market price. Of this is only an example; but should H1 and M30 show candles that are black while M15 has a white candle, you should not proceed with this transaction. If you want to guarantee successful trades then you need to stick to the rules. Following the rules to make a profit works for all forex strategies, not just this one.
Rules when Placing Take-Profit and Stop-loss
Placing take-profit and stop-loss for this forex strategy has only two rules:
15- 20 points is where the stop-loss is fixed. Here you should be getting a minimum of 30-40 pips profit. As soon as the price gets to 15 pips, the transaction transfers to break-even or half the position is closed. Trailing stop is used by this simple forex strategy just like a lot of other forex strategies.
You can place a stop loss below the close minimum (above the maximum). Here the take-profit is 2-3 times the protecting stop order. Profit can be fixed the same way as before.
Like a lot of people who first start trading forex, I would use the market to make a few pips before leaving deal. Most of the time this would be successful but eventually the long-term effect was to make losses.There were times when I wiped out my account. As it turned out, I was using an approach known as scalping and what I didn’t know was that I did not have the right experience or knowledge to properly use this technique. I then became a positional trader and would open positions for three of four days with the aim of getting at least 100 pips of profit.
Again, I would mostly succeed and this worked for a number of years. But this became a different story after I had met a trader who had used the same strategy for years. That strategy was the scalping strategy. He was enjoying huge profits; a lot larger than my own but in the same timeframe to me and with account sizes that matched his broker.I asked him about how he approached trading and what tactics he used.
We met up and he told me about what he looked for that triggered him to buy or sell and when to do so. We spent three days together and what I found most surprising was how I understood all of what he told me. To be quite blunt, his trading style was basic. He didn’t need to spend long looking at the current market conditions and neither did his system need indicators or oscillators. After having taken in what I could in those three days, I gave it a go myself and the results were incredible.In under three weeks my account had tripled. And I was spending no more than 4 hours per day to do this.
The advantages and disadvantages of scalping
In essence, scalping is a method of making a lot of trades in the course of a day using only small timeframes to make small profits – only a few pips. Unlike position trading where a lot of preparation is needed before a deal takes place as well as the market analysis, scalpers just need to have one signal before they enter the market. He makes his profit and gets out just a few seconds later.
Furthermore, position traders will have to leave their trade open for several hours or even days scalpers will hold open positions for minutes or seconds. What’s different is that this will happen lots of times throughout the day.
Scalping is commonly regarded as being just like gathering lots of loose change. Position traders will look for the big profits in one hit whereas scalpers take many little profits. The most remarkable part is that scalpers will often gain more over the same term than a position trader would, usually making between 5% to 10% in one trading day.
So what are the advantages of scalping?
I believe that the benefits of being a scalper far outweigh the disadvantages and as such it is a more profitable and appealing choice than position trading. Specifically I would say that the benefits are:
1. You get bigger profits than being a position trader
2. You don’t have to wait for a strong trend to start – it’s just not relevant with this strategy
3. Market analysis and forecasting becomes redundant.
4. When the trading day finishes, all of my positions are closed and I am not concerned about whether the market will turn against my positions overnight..
But what are the disadvantages of scalping?
Just like all trading systems, scalping has its disadvantages. It would be wise to note the next bit as it is significant:
1. When you scalp for 4 hours, you will find that your trading can be very tiring.
2. Scalping leaves no room for mistakes. You have to be able to immediately understand and analyse a situation and come up with clear and unemotional decisions straight away.
On this second point, there is one main difference between scalping and position trading
From a risk management position, position traders will not use up more than 10% of their capital when they are conducting trades. This is not applicable with scalping and 50% or more can be used. And when you are scalping you need to be constantly monitoring how the market is reacting, make snap decisions before leaving the market. And avoid all mistakes.
So what are the main indicators for entering the market?
The main issue with scalping is being able to correctly determine the support resistance levels and this forms the basis for the whole trading system. In my experience, 90% of the time the currencies will bounce back from the resistance and support levels. This will often be only a small amount but usually enough to make some money.
But you might be wondering how this is different from position trading as defining the support and resistance levels is what position traders need to do as well?.
There are lots of differences. Traders that define support and resistance levels and the trend channel will also need to have a 2-point minimum to build up strong levels while simultaneously using time frames of no less than 1 hour. The best indicator to determine trend channels is the LR-Channels Indicator. Scalpers aren’t affected by this as they will look for a level to trade at using a 1-minute timeframe and do not need a large bounce as one point is all that is needed to make a profit. As markets keep changing, trend breaks can cause losses to some traders whereas scalpers will pickup the small profits.
One of the biggest factors when scalping is being able to very quickly identify what support and resistance levels are needed. For this, I can recommend BJF support resistance levels indicator.
Next up we will look at:
Support and resistance levels
It’s important to remember the following: With scalping strategies, you must be precise in defining the correct level of resistance and support and on differing timeframes from one minute to one hour as opposed to following the more classic method of technical analysis. A 5M timeframe has also been used here and it’s clear to see that resistance levels have been formed. In both of these diagrams, the higher and lower levels have been clearly formed. Forget about the fact that there is a five-minute timeframe – the important point to remember is to determine the levels of any of the timeframes and the difference is practically negligible. If a larger timeframe is used then there is a direct correlation to the amount of money used to come into the market. This will be looked at more later.
Being able to accurately define the support and resistance levels needs answering. Our earlier graphs provide the most common depiction and any scalper will be interested in this. The following images are exactly the same picture but a little longer. We can see that the pair of currencies did return to the support and resistance levels and then rebounded. So how do we make money? We make the money by selling or buying as the resistance and support levels are approached. When we look at the resistance level diagram, the currency clearly touches the resistance level and rebounds back from it in the short term. There could have been two sales here.
So how are the levels defined?
We know now that when we scalp forex we must define resistance and support levels. So now I can share with how I think they can be defined. The level is set where the price falls at the spot where the bounce could go to either one side or the other. The more classical technical analysis tells us that the probability of the next bounce is above about 90%. Here is an appropriate juncture to make another comparison between position trading and scalping. Position traders look for those instances where the price bounces by a minimum of 100 pips in the required direction – not 20 to 30 pips. However the amount of these types of bounces are much less common than the 90% probability where there is a 20 pip jump in price; which then goes back to the level and jumps up again by 15 pips and could then have a bad bounce or go through the level.
To collect up all of these bounces and put them into their account is the goal of every scalper. So to continue to define the levels we can look at a number of criteria using various timeframes however they will always have similar definitions.
Defining of 30M and 1H levels
My view is that it is easiest to trade using 30M and 1H trade levels it is the highest and the lowest points on the diagram that are used for that. We will find that currencies will frequently hang in between these points therefore we need resistance and support lines drawn in order to wait for the currency pairs to make a move to one level or the other. It can appear as though the currency pair is trapped and not able to find a way out from this position and would eventually go up or down. Although with the currency below the lowest point or above the highest point, you should mark it and wait while the currency pair gets near.
Defining of levels on 1M 5M
The levels of 1M and 5M trade are marked differently. Under these circumstances, both the highest and lowest points achieved inside the 3-4 hour period will be identified and trade levels tagged to automatically process trades should these points be hit.
With the 1M and 5M, you buy or sell when trade levels are reached according to if the price is nearing either the resistance or support lines. But this is different for the 30M and 1H. These levels have greater power and more people see them so more enter the market before the price has a chance to approach the currnet level and the bounce occurs quicker than required. This is the reason that I decide to trade even when prices are not nearing the current level and I frequently walk away with between 5 – 20 pips of profit. Sometimes the price hits the indicated level so I will use a double lot to open up a position.
Volume of market entry
Just like when we define the trade levels, the entry volume needs to be considered when we scalp. This isn’t complicated but you need to know it. It’s commonly accepted that the higher the volume at entry point the greater the amount of profit earned per pip. By the same token we make a loss on each unprofitable trade. So scalping needs a different method of capital management and can create big losses and profits. Of course, we aim to minimize all losses while looking to get the largest possible profit and as such we should only be looking to enter into the market with a large volume when we are very confident that a bounce will occur.
30M and 1H can give us that confidence and we can sum up this approach with the following:
The size of the timeframe will be reflected in the size of the volume. We need only concern ourselves with getting certain figures; in other words a certain volume in a specific timeframe. I would use these volumes in my trades if my deposit was 5K.
10% to 20% of the deposit will be used in the deals on the 1M, 5M
20% – 50% on the 30M or 1H.
So what if the currency pair does not go our way?
Scalping doesn’t let you relax as it is high risk. Position traders can absorb occasional losses but due to the trading volumes being so much larger, any losing position that isn’t closed quickly will cause large losses. A good rule to remember is to close any position with a pip loss exceeding 25 unless you used less than 10% of your deposit. You can keep this ones open until the losses reach 50 pips by which time they should be closed.
So scalpers make their profits through numerous daily smaller profit-making deals So this means that large profits aren’t pursued as the main criteria is to achieve a profit many times. The behaviour of the currency allows me to operate a scalping strategy that gives 5 to 20 pips of profit.Should a specific level be achieved and a bounce occurs quickly I will wait for a 20-pip profit. But profit will remain fixed at 5 pips should the bounce be slow.
How currencies can behave when specific levels are reached
When a resistance or support level is reached the currency can react differently There could be the smallest movement at the precise spot the level has been indicated; sometimes a quick bounce happens. Now we know about responding to each level but we should understand some more points. Once the bounce has happened and the position has been closed, wait for a short while before going back into the market as there can be quite a significant bounce. Because currency will continue to maintain a certain trend, we should hang on until the point reaches a limit.
Frequently, once a bounce has occurred, the currency will approach the level that it had rebounded from once more and so the deal can be repeated. As the currency pair repeatedly approaches the support and resistance lines, this deal can be repeated many times.
Some vital factors about scalping
1. Scalping is easy but you need to remember some important points. Before trading you must ALWAYS look through the calendar of economic events. Trades can be impacted by news and bouncing may not occur even with strong levels of trade.
2. Emotions are useless for position traders and scalpers. As scalpers trade with larger volumes they are most affected. The market cannot be defeated any losses will be your punishment for attempting to do so.
3. Close losing positions straight away and never start unprofitable positions. You must adopt the stance that throughout the numerous trades in the day your losses will be covered by your profits.
4. Things can change instantly so never move away from your computer. You must be on hand and prepared to make a quick decision so you will need to be able to react quickly.
But the simplest way to start forex trading is to use an automated trading system and for this I would recommend the Forex Robot TFOT.
Some advice when picking a broker
Successful scalping needs a broker as well so you should look for the following:
1. Narrow spreads like 0.8 – 2.5 pips for GBP/USD and 0.8 – 1.5 on EUR / USD
2. A quick trade execution command
Not all brokers like scalpers and some might look to prevent it. Other brokers will prevent scalpers from receiving profit. Avoid them. Not being able to execute trades quickly will inhibit successful scalping.