Scalping is a unique trading style which is based on short-term time frames like 1 minute or 5 minutes time frames. In comparison to Day Trading or Swing Trading which are longer-term trading styles, Scalping is a fast-paced trading style. Therefore, this trading style has been preferred by a group of those scalpers who can’t wait for hours and don’t have enough time to set up their trades on longer-term time frames.
However, Scalping also implicates higher transaction costs than longer-term trading styles as it allows the scalpers to open multiple trades on their trading accounts per day. But higher transaction costs can easily be ignored by the scalpers as they can make good profits by strictly following this trading style. Hence, it is recommended for the scalpers to trade during the most liquid and volatile market hours in order to save the transaction costs on different trades and to achieve higher profits as well.
How to Scalp Forex
Scalping may contain various risk factors due to the market noise that affects the price changes on 1 minute or 5 minutes time frames. These price movements cannot be neglected due to short-term time frames. Also, fundamentals can’t help at such low time frames. Therefore, it is necessary for the scalpers to understand the utilization of different technical tools or indicators to filter out the market noise and find new trading opportunities. The scalpers can also create profitable Forex signals with the help of these technical indicators.
The 1 minute trading strategy totally depends on mean-reversing principle, simple trend-following and overbought & oversold market conditions. It is better for the scalpers to buy or sell a currency pair on the 1 minute time frame through getting additional validation from pullbacks. The following tools are required to scalp trade Forex on 1 minute chart:
Two Exponential Moving Averages
‘Exponential Moving Averages’ is far much better than Simple Moving Averages in terms of adjusting quickly and perfectly as per the recent price movements. Basically, it is the combination of a 50-period EMA and a 100-period EMA. It is very much beneficial for the scalpers as it helps in identifying the market trends on 1 minute charts.
- Up Trend – This situation occurs when the faster 50-period EMA crosses above the slower 100-period EMA.
- Down Trend – It is exactly the opposite situation of up-trend as it occurs when the faster 50-period EMA reaches below the 100-period EMA.
It is suggested for the scalpers to trade in the direction of the trend as it will give good returns to the scalpers.
Stochastic Indicator with a Period Setting
It is basically an oscillator that comes with a period setting of (5,3,3). The main objective of this indicator is to provide in-depth knowledge and information about oversold and overbought market conditions to the scalpers. The reading of Stochastic Indicator ranges between 0 and 100 only.
- Overbought Market Conditions – When Stochastic Indicator value crosses over 80 then overbought market conditions will arise. It sends an alert to the scalpers that the price of currency pairs may fall soon through Forex signals.
- Oversold Market Conditions – When Stochastic Indicator reading reaches below 20 then it specifies the arising of oversold market conditions. This condition indicates to the scalpers that the price of the different currency pairs might rise soon.
The Last Words
Forex Scalping requires a lot of market experience to recognize the up-trends and down-trends on short time frames. Therefore, after understanding the concept and roles of technical indicators, it is important for the scalpers to use the strategy in scalping the Forex market.