Forex Trading Strategy with Scalping – 5

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Forex Trading Strategy with Scalping – 5

In this section we will talk about a currency pair that is suitable for use on scalping strategies. In general, currency pairs for scalping are those that do not have a tendency to move sharply or often sudden price jumps. In this case the most appropriate group of major currency pairs, and among the major currency pairs

In this section we will talk about a currency pair that is suitable for use on scalping strategies. In general, currency pairs for scalping are those that do not have a tendency to move sharply or often occur sudden jumps in prices. In this case the most appropriate is the major currency pairing group, and among the most liquid currency pairs is the EUR / USD. But for aggressive and experienced scalpers, cross currency pair with high volatility is also the choice such as AUD / JPY, GBP / JPY and GBP / CHF.

Forex Scalping Strategy

Scalping on major currency pairs

Included in this group are EUR / USD , GBP / USD and USD / CHF . Although USD / JPY is included in this group but for scalper pair with JPY have different movement behavior and grouped in currency pair for carry trade or called carry pair. The main currency pair is a scalper choice because it is very liquid besides not being so affected by surprises that can sometimes occur on the market (market shocks). At some point in certain market conditions that move the AUD / JPY pair up to 100 pips only able to make EUR / USD move less than 30 pips.

Major currency pairs are traded around the world almost by all major banks and financial institutions because these currencies are also used as foreign exchange reserves in various countries. In terms of daily trading volume the major currency pairs are the largest. Due to the relatively slow nature of the price movement, the scalper who likes to play with a regular trading range, dislikes the shock and the market turmoil and is quite satisfied with the ‘conservative’ profits, can concentrate on scalping on the major currency pairs.

Scalping on carry pairs or currency pairs for carry trades

Carry pair is a currency pair that is usually chosen to be traded with the main purpose of gaining profit from the difference in the daily interest rate between the two currencies in the pair (carry trade). Carry pair is also liquid, but quite volatile. Couples like EUR / JPY, GBP / JPY and USD / JPY are also traded by big players around the world but quite volatile (hectic) with volatility and a fairly high range (eg GBP / JPY). This can happen because the big players who are carrying the trade carry trades Yen and invested in other currencies that can then be retained or used to play in other investment instruments. If the current Yen interest rate is 0.1% and the last Australian interest rate is 3.25% then for carry traders taking the AUD / JPY buy position is currently profitable as long as their strategy to cope with daily currency fluctuations is really appropriate.

The carry trader is definitely not a scalper. They hold their position primarily in order to gain interest, and at the same time hope that it will not be too turbulent to fight the position it opens. As a result, if there is a surprise in the market as when the Japanese central bank (BoJ) intervened to weaken the Yen value they increased the amount of trading lot (due to buy AUD / JPY or buy USD / JPY) resulting in a jump in market prices in a short time. Conversely, if the Fed cuts the US dollar interest rate, those with a buy USD / JPY position will soon close their positions. Since they are average big players, the jump in market prices is quite significant.

With such a carry pair character it is obviously uncomfortable for a scalper especially inexperienced. In addition to the difficult anticipation of a sudden fluctuation, there is also a widening of spreads in the event of strong price fluctuations so it is very risky for scalpers who are not proficient and not familiar with such market conditions. If you look at the spread widening that occurs in the carry pair will be larger and longer than the main currency. The beginner scalper is not recommended for trading on a carry pair. For an advanced scalper usually use the method follow the trend (trend following) with breakout strategy if playing scalping on the carry pair. Besides the pair above, another popular carry pair for scalping is CAD / JPY, GBP / CHF and EUR / CHF (before CHF is pegged to EUR).

Scalping on exotic currency pairs

Exotic is the term used in the options market for developing countries currencies at high economic rates, such as ZAR (South African Rand), BRL (Brazilian Real), SGD (Singapore Dollar), NOK (Norwegian Krone) and so on. In the forex market an exotic currency pair is usually paired with major currencies especially US dollars such as BRL / USD, NOK / USD, USD / ZAR or USD / SGD. For scalpers it is not advisable to trade on exotic currency pairs because the spreads are quite high, often gap and less liquid. For trading in a very short period of time money management is difficult to apply to price movements of these currency pairs.

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