HOW TO USE FOREX SCALPING STRATEGIES & INDICATORS
In today's article, we are going to focus on how best to use forex scalping strategies and tips on how to use them effectively. We will be discussing the forex scalping of multiple charts and the relative strength and weakness exit strategy.
Always remember when using any sort of indicator or tool in your trading, that you should focus first on your supply and demand levels to provide you with the main entries and exits. The indicators are to be used to confirm entries.
If you have experience within forex day trading, you will know about forex scalping strategies, these are techniques where forex market traders will profit from very small changes in prices over multiple currency pairs. The positions are open for a small amount of time, sometimes seconds. It is a very time-consuming method of trading and one in which full-time traders who have the time will favour more over the occasional speculator.
Scalping can be a very risky style of trading since some trades last only moments, there's little opportunity to place a stop loss. If some trade news surprisingly comes out of Europe and America while you're on the EUR/USD then your quick scalping trade could quickly turn against you.
Scalping indicators in Forex
Looking for a good indicator is very tricky as there are so many out there with most being useless, please see a couple we will introduce you to.
- The Relative Strength and Weakness Exit Strategy
- Forex Scalping of Multiple Charts Strategy
- Ribbon Entry Forex Trading Strategy
These forex scalping strategies are similar to those used on longer time frames but modified for trading on a very small-time frame such as a 2 minute or 5-minute chart. Any forex scalping strategy is always best to use in a range-bound market with minimal interference from fundamental factors. Scalping will perform poorly in times of volatility and trend movement.
Ribbon Entry Forex Strategy
The main task of this scalping method is to place the simple moving average (SMA) 5-8-13 combination on a 2-minute chart. This will help determine trades to be purchased or sold on counter swings in small trends. This strategy is fairly easy to master as all it requires is to line up the 5-8-13 ribbon. It will then point to either higher or lower during solid trends. A penetration in the 13 bar SMA determines a diminished momentum, therefore favours a reversal.
The ribbon will flatten out during range-bound periods and swings, the price may even cross the ribbon a number of times. The scalper will then observe the changeover as the ribbon turns both ways – higher or lower.
The Relative Strength and Weakness Exit Strategy
This simple forex scalping strategy is about determining the best time to take profits and cut losses in short term scalping trades. This, of course, is of vital importance. Usage of the 5-3-3 Stochastics indicator with an SD Bollinger band and ribbon signals serve well in markets like the indices.
The best type of ribbon trades combine with stochastics’ turn to become higher than the oversold level, or lower than the overbought level. Make sure to time your exit accurately, watch the interaction with the band at a certain price. Take profit in concrete band penetration as they forecast the trend. Forex scalping strategies can’t afford to go through retracements in the market.
Also, take time to exit if the price fails to penetrate the band as the Stochastics indicator rolls over providing you with the signal to get out of the trade.
Forex Scalping of Multiple Charts
This forex scalping strategy is definitely our favourite here with the traders and one of the best to use in forex scalping. In order to set this up, pull up a 15-minute time frame of your desired chart. Please ensure the chart has no indicators on it at all, then set up 3 horizontal lines for a 45-90-minute trading session. The first line for the opening print, the other two for the high and low of the trading range.
Observe price action at these three levels, you will then also set up this on a 2-minute time frame too. You will find the biggest profits come when the scalp support and resistance line up on both timeframes.
Due to the nature of forex scalping, the risk is a large factor. Trading on short time frames can mean there’s little time to set stop losses, therefore discipline is of the utmost importance. Knowing when to close out a trade is just as vital as knowing where to enter into a trade.
The key component that drives your discipline, is the control you have over your emotions when you are trading the forex market. As human beings, we are driven by our moods and emotions. If we were simply logic-based creatures, then everyone in the world would get top marks in mathematics without a single fault. The truth is that we’re all just walking impulses, and it’s up to us and us alone to curb those impulses, and only act in the way that we decide is the best way to reach our goals.
In order to help you control your impulses and stay calm, collected, and logical when trading, here are a few tips that may help you.
- Breathing exercises
Simple, yet effective. A few minutes before your trading session, just take some time out and breathe, make sure you are in a comfortable mindset to begin your trading. If you are distressed or under pressure from external sources, then you’re going to fall prey to those emotional impulses, and you will put your capital at risk.
- Calming beverage
For me personally, this is a nice cup of tea. For you it might be something else: A glass of cold water, a nice hot coffee, it doesn’t matter what it is, it could be a hot chocolate covered in marshmallows, just as long as it helps you find that internal balance to approach the markets with a good mindset.
This one is all down to personal tastes, though I would recommend something that is in line with the speed your mind is working at. If you’ve just had a coffee and your mind is racing, then something calm but a high tempo. If you’ve just meditated and your mind is calmed, then something soft and slow would be best. I’ve found that if the tempo doesn’t match your current mindset, the music can become subconsciously distressing as your mind attempts to match the tempo.
When you’re starting your trading session, have a target in mind, once you’ve reached that target, you simply walk away happy in the profits you have made. This can be applied to each trade you take also to prevent you from getting overly ambitious and that profit turning into a loss. Scalping is fast-paced, and so having targets like this in mind helps you find stability and control, ensuring you don’t fall into an emotional trap.
Sitting in front of a computer for extended periods of time can in itself become stressful. It’s important to take some time every now and then to get up, walk around, get some fresh air, and reset your mind. I recommend a 15-minute break for every hour of your trading session, just make sure you don’t have any open trades when you decide to take a break as unattended scalping trades are a danger to you and your capital. Ensure all trades are closed and you have no scalping pending orders without stop losses and take profits set.
I hope these points help you to keep your composure when scalping as a healthy mindset helps to create a healthy trading account. Your mood and your performance are interlinked more than you might expect. Keep calm and carry on. As cliché as that may sound, it’s surprisingly relevant when it comes to forex market trading.
Always approach scalping with caution as it requires an experienced trader to execute forex scalping strategies, you will also be required to be in front of your charts for large amounts of time. Using the forex scalping strategies above will certainly help as they are some of the best scalping indicators, learn to trade the correct way first.
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