Scalping takes profit from small movements of the market. For so many years, this forex trading style greatly relied on Level 2 bid/ask screens that locate buying and selling of signals, as well as demand imbalances and reading supply. Nowadays, the methodology that previously worked in scalping is now less reliable over these three reasons – order books being emptied since 2010 because of the flash crash that affected long-standing orders.
The second reason for the said decline can be due to the dominance of high-frequency trading. Lastly, the majority of trades are mostly taking place in dark pools that don’t have real-time reports. But then, this new challenge towards scalpers can be met using these strategies that you can effectively use in the market.
Top 3 Scalping Strategies
- Moving Average Ribbon Entry Strategy
In this strategy, you will be identifying the strong trends by placing a 5-8-13 simple moving average (SMA) into a 2-minute chart. This is highly recommended to new traders as it is very easy to master.
- Relative Strength/Weakness Exit Strategy
Do you want to know if you will take losses or profit? The 5-3-3 Stochastics combined with the 13-bar 3-standard deviation can offer you great help. The best ribbon trades are done as the Stochastics gets higher with oversold level or overbought level if it gets lower. Additionally, a trader will be required an immediate exit whenever the indicator crosses out of the position following a profitable trade.
- Multiple Chart Scalping Strategy
Lastly, this strategy will let you pull a 15-minute chart without indicators while tracking the background condition that usually takes effect in an intraday performance. You also have to add three lines – one is allocated for the opening price, the second is for the high trading range, and lastly is for the low trading range, which can be set up for the next 45 to 90 minutes.
The Pros and Cons of Scalping
- Less-Risky – The strategies used in scalping are known to be less risky as it has tight stop-loss points and leverage. Because of this, it possesses very little market risk.
- Automate Easily – Most scalping strategies that we have are easy to automate as they particularly fall into technical criteria that are easily calculated.
- Non-Directional – Scalping strategies don’t have to go in a specific direction. In fact, you can take advantage of the bottom of the top market.
- Higher Minimum – Unfortunately, one of the major drawbacks of scalping includes the high minimum requirement among traders. If you want to genuinely reach for successful trades, you need to fund your account with higher minimums.
- Higher Transaction Cost – Aside from the fact that scalping requires a higher minimum, the transaction cost of scalping is also higher compared to other forex strategies. Traders will have to pay a higher transaction cost to benefit from scalping.
- Greater Leverage – This is also a major drawback of scalping. You need greater leverage if you want to control and avoid acquiring large losses.
When you do scalp trading, make sure that there is less risk involved, you keep as many trades per day and take control of your emotions.