Have you been wondering what forex strategy to depend on for successful forex trading? Do you doubt whether scalping will guarantee your success in the market? Well, no worries, I have been using scalping my entire Forex trading career, and I am here to teach you how I become a profitable forex scalper.
First things first, what is scalping? This is a short-term trading strategy that depends on slight market price movement. Scalping is very aggressive, considering trades occur within a few minutes and close after reaching a few pips. An investor usually has little time to decide when to enter and exit a trade.
To make substantial profits, the investor makes many trades throughout the day, hence its name, scalping. Most traders avoid using this strategy due to its risk; however, you can become quite a profitable Forex scalper if you learn all the rules.
Somedays, I can make up to 50% of my equity. So scalping is ideal for beginners since it does not require deep technical and fundamental analysis; It does not depend on trends, and it can work in any type of market.
Table of Contents
How I became a Profitable Forex Scalper
Scalping rules for profitable Forex Scalpers
It is crucial to understand the basic scalping rules as it helps reduce risks. To become a profitable Forex scalper, it is safer to keep your trades short and take advantage of low volatile markets.
Here are the basic rules of crypto scalping;
- Ensure that the profit is more than the spread; for instance, for a spread of 2 points, the trade should at least be 3-5 points.
- Analyze from higher timeframe; then take advantage of the one-minute and five minute timeframe as it reflects the slightest price changes.
- Take advantage of leverage to maximize your profits
- Remember to follow the rules of risk management.
- Choose a broker with the lowest spreads. We wouldn’t want all our profits to go to the broker.
Best indicators for scalping
Like any other trading strategy, there is a little technical analysis involved in scalping. But the number one strategy that works for scalping is price action.
Indicators used for scalping are not limited. You should find what works for you and in the specific market that you are trading. From my experience, here are some of the indicators that i used:
Bollinger band scalping
A Bollinger band chart is helpful in showing the levels of volatility in the market. Scalpers need this information to trade since their trades take place within 1 minute to 5 minutes. Bollinger bands are more effective when used on forex pairs with the lowest spreads, which are associated with low volatile markets. The rule for entry is simple, sell when price touches the upper Bollinger band and buy when the price touches the lower Bollinger band; few pips are okay per entry since you are just scalping.
The moving average can be used to spot short-term price variance in market trends of a specific pair. For more on Moving average read: How to Grow your Forex Account Using the Moving Average Strategy
Relative strength index (RSI)
Relative Strength Index popularly known as RSI is a momentum oscillator that helps predict the future direction of the forex market over a specific period of time. I use RSI period 14, and I would advise scalpers to set their RSI oscillator to shorter timeframes, such as the M5 timeframe. Momentum indicators are beneficial to forex scalpers as it indicates a suitable strategy for the current market environment.
Note: Please always analyze the chart using price action before confirming with indicators; remember to minimize your risk as this will ensure you make good profit
Best scalping strategies
- Breakout trading
I use breakout trading when prices movements are low, but there’s an imminent price breakout in the near future. A breakout is characterized by strong momentum. There is a rapid fall or rise in price, which provides excellent opportunities for scalpers. In theory, breakouts can happen at any time.
The trick here is to identify potential breakouts. Price breakouts happen when price action moves in a sharp sideways range. An extended period of sideways price movements eventually yields a strong breakout in the market. The perfect breakout trading indicator is Bollinger bands that indicate market volatility levels.
I also use price action to trade breakouts by checking support and resistance points.
2. Volatility breakout trading for scalping
This strategy is close to breakout trading; however, this one measures volatility levels in the market. I use technical indicators such as standard deviation and the average true range indicators.
These oscillators give a better understanding of the rise and fall in market volatility and momentum. Higher volatility basically indicates higher price fluctuations. You can read more on ADX here
I would not recommend this strategy for beginners. It is learned through experience.
3. News based trading
There are news events that significantly affect markets. For instance, central bank interest rates, GDP, inflation rates, and unemployment levels affect the forex market. To conduct this fundamental analysis, I generally research how the market will react to this news.
However, I would only advise advanced forex traders to get into news trading. High volatility can result in increased profits as well as losses. Also, some brokers don’t allow news-based trading. Another risk could be bigger spreads as a result of significant announcements.
4. Trend consolidating breakout
Identifying the price movement is crucial. Sometimes, when the price is following a strong trend towards a particular direction, it tends to pause. This can be seen as continuing bullish or bearish flags and pennants patterns. That is how I ensure I get many winning trades in a day. This type of strategy is ideal for low volatile markets.
I identify a trend consolidation breakout by reading price action patterns. I majorly focus on small chart timeframes. However, higher chart timeframes are also crucial in understanding the current trends. I am saying that you can identify a trend consolidation breakout by combing both small and bigger chart timeframes.
My winning strategy
Using Basic support/resistance
- Locate the 30M support level
- Enter a long position at the support level
- Find the nearest resistance level on the upper side
- Set up a risk management plan. Set the take-profit and stop-loss in a 1:1 ratio, or aim to earn 1-2% profit
- Follow the market trend using the 5-minute chart to see if the price action aligns with your set trade
- If the order is entered, observe the market on the 5-minute timeframe and reset your take-profit up as you earn unrealized profit
- Wait for your take-profit or stop-loss trigger
To become a profitable a forex scalper, you need to be attentive and very sharp. Remember, forex trading is risky and requires experience and a lot of patience; risk responsibly.
All the best in your trading!