Forex Trading Strategy with Scalping – 2
In section 1 it is mentioned that in scalping we collect some not so large profits until the sum is entirely large enough. Nonetheless, scalping is not a frivolous way of trading in the marketplace and is chancy. A successful scalper precisely takes into consideration what to expect from market movements and market movements
In part 1 it is stated that in scalping we collect some profits that are not so large that when added together they become quite large. Nonetheless, scalping is not a frivolous way of trading in the marketplace and is chancy. A successful scalper precisely takes into account what is expected of changes in market price movements and decisions taken. They combine various distinctive features that exist in the forex market to get a condition that is right and profitable for trading. All characters and basic features in the market are utilized such as price trends, basic candlestick formation, pattern of price movements (pattern) and not to miss fundamental news release events and other important economic events. That is what distinguishes scalping strategy with other strategies such as swing trading.
Utilize sharp price movements
Most scalpers focus on the sharp price movements that often occur in the forex market. In this case the aim is to capitalize on a sudden change in market liquidity to gain profits quickly. This type of scalping does not really care whether the market price movement is trending or sideways, more importantly its volatility. The objective is to identify the imbalances of demand and supply of market prices that allow open positions. This imbalance is caused by a lack of liquidity (can be on the buyer or seller side) that can happen temporarily and can be utilized to take advantage in a short time.
Take for example when trading on EUR / USD, in normal circumstances the spread is quite small and the market is quite liquid until there is rarely a difference (gap) which means between the bid and ask it. But in certain circumstances, for example due to the release of important fundamental news, liquidity can be greatly reduced until there is a significant difference between the sides of the bid and ask, say for example a bid at 1.3010 while ask at 1.3050. In very short moments the spread of bid and ask prices will become narrow and prices tend to move to either side (bid or ask). Scalper will take advantage of this moment of rapid fluctuations to reap profits. When the price has reached 1.3030 and the bid and ask price spread has narrowed again as normal, the scalper will open a position such as sell, and will close when the price drops at 1.3020 due to volatility. In this case the scalper gets profit from the market’s emotional reaction.Gaps that occur when important fundamental news releases are often exploited by scalpers.
The influence of the amount of leverage
Because scalpers collect not-so-large profits and if they add up to be significant enough, often scalpers don’t feel satisfied with the results obtained in a few weeks or months compared to the energy and time wasted on trading. To overcome this, the scalper uses some measure of leverage when trading, of course, depending on the brokerage rules in which they are trading. Increased leverage will lead to margin trading (amount of collateral) is small and can use a lot more and more. But many experienced scalpers recommend using small leverage in the first 3 months of trading until they find a method that is suitable and tested to use. If the right and tested method has been obtained, the size of leverage can be increased little by little by not forgetting to always use the stop loss setting and profit target.
Mastering technical analysis and flow of price movement (order flow) well
Trading by scalping is generally done at the time frame of 1 minute and 5 minutes requires knowledge of technical analysis rather deep, especially to apply the indicators and setting parameters that fit. In addition to technical indicators, the ability to read and interpret the flow of prices (order flow) as displayed by candlestick formations is very helpful and necessary.
A scalper must be diligent, conscientious and disciplined to continue to pay attention to price moves and follow the methods used because small carelessness can have a big impact. The role of fundamental analysis in scalping is very small and almost neglected. Although at the time of fundamental news releases, the scalper focus is being fixed on technical indicators and order flow candlestick is less likely to analyze the release of non farm payrolls data for example.
In certain circumstances the scalper also uses trend analysis by looking at higher time frames to find out the main trends, but still using the time frame of 1 minute and 5 minutes in trading.