What is scalping in trading: types of scalping, advantages, and disadvantages. Forex scalping trading strategies: practical examples and screenshots MT4
Scalping strategies in Forex beginners are in great demand, although this is not entirely justified. High-frequency trading (holding a position in the market for only a few minutes) allows you to take momentary profits and avoid swaps. But on short time frames, it’s difficult to make an accurate forecast. Scalping training on a demo account allows a trader to develop reaction speed and learn to intuitively understand the behavior of players in the financial markets, but it is better to open real transactions on longer time frames. In this review, you will read about what scalping and its varieties are, learn the pros and cons of high-frequency trading, as well as get acquainted with practical examples of strategies.
Scalping for beginners: the essence, types, recommendations, practical examples of strategies
Scalping is high-frequency trading that provides earnings on a variety of transactions in a short period of time. For traders who are just starting to trade, this trading strategy is considered dangerous because in the short term the trend is chaotic (the so-called price noise effect) and therefore it is poorly predicted. On the contrary, I believe that scalping training should precede acquaintance with medium and long-term strategies. Scalping trains attention, reaction speed, visually shows slippage problems. And let the trader be required maximum concentration and emotional stability, if he is well-versed in theory, scalping is an excellent simulator for practicing them.
In this review you will learn:
- What is scalping on Forex?
- Types of scalping and common examples of strategies.
- Advantages and disadvantages of applying scalping strategies.
- Practical examples of applying scalping strategies: rules for opening long and short positions, placing stops, exit the market.
What is Forex scalping?
What is scalping in Forex trading? It is believed that this is a type of trading when a trader opens many trades in a short period of time and closes them after a few minutes. This is not an exact definition. Scalping is a trade that involves placing orders at a small distance from the opening point. The trader closes the deal in a short time, as soon as the price changes by at least a few points, taking into account the spread. Even one deal opened by this principle already refers to scalping. It is logical that in order to earn money, a trader is forced to open dozens of such transactions within one day, but their number is no longer important.
The key to success in scalping is to catch a good moment regarding predictable volatility.
Types of scalping and common examples of strategies:
- Scalping on the news. At the time of the news release or publication of statistics, there is a big surge in volatility and growth in trading volumes, which can last from several minutes to several hours – a favorite time for trading scalpers. There are two trading options:
- Placing multidirectional pending orders in a few minutes of the publication of statistics, deleting a failed order after publication.
- Opening of several short-term deals for directly correlating pairs in the first minutes after the publication of information in the direction of the main trend.
Making scalping on such a strategy is not easy, both options have their advantages and disadvantages, which are described in more detail in the review.
- Classification of scalping types depending on the selected timeframe:
- Pipsing. It is called the most profitable and most high-risk strategy (in terms of profit, the issue is very controversial). Trading is conducted on the M1 interval, transactions are held in the market for several minutes. It happens that 1-2 points are enough for the scalper since he uses the maximum shoulder (sometimes up to 1: 1000).
- Medium-term scalping. It provides a relatively smaller number of open transactions, the duration of which is 5-15 minutes. Interval – M5. The size of the leverage is determined by the trader.
- Conservative scalping. Transactions can be held up to half an hour, timeframe – M15.
- Classification of scalping types depending on technical strategies:
- Scalping with analysis of several timeframes. A similar strategy is used for trading on a trend that has a short-term nature. It can turn around at any moment because classic trend strategies on hourly timeframes will not work here. Examples of the emergence of such trends are a short pause between news releases, which are predicted to be controversial. Or a temporary lull with a predominance of the power of “bulls” or “bears.” The essence of the strategy: on the interval H1-H4, with the help of a trend indicator and a confirming oscillator, the moment of trend emergence is determined. Then comes the analysis of the market and the search for signals on the M5 timeframe. A practical example of such a strategy will be discussed below.
- Trading in pairs, “guide”. A “guide” is the main pair that the scalper is guided by, but he trades on a correlating pair, along which a slight delay will be observed. For example, EUR / USD instantly reacts to statistics from the USA. If EUR / USD and USD / JPY are growing, then the pair EUR / JPY will also grow.
- Intuitive scalping. Given that the scalper has little time for analysis and decision making, there is a category of traders based on intuitive experience. Their understanding of the market is refined so that technical indicators are not necessary.
I do not consider the division by type of indicators (graphical, level analysis, etc.), this is all logical. The classification can be expanded and I will be grateful if you, dear readers, help me in this by suggesting your options for strategies in the comments after the review.
Requirements for implementing a successful scalping strategy:
- The lack of restrictions on the part of the broker to implement such strategies. The offer should not contain restrictions on the number of transactions and their minimum time spent in the market.
- Instant execution of orders. It largely depends on the broker, liquidity providers, the Internet and the platform itself.
- Big leverage. Professional scalpers work with leverage from 1: 500-1: 1000, but according to the norms of European regulators, the maximum leverage is reduced to 1:50.
- Better instrument liquidity.