TABLE OF CONTENTS:
What is the meaning of scalping in forex? Forex scalping strategies, Forex scalping techniques, Scalping Definition, Forex, Scalping trading meaning.
Scalping is a form of intra-day trading method where traders tend to trade with the aim of targeting a few pips of profit. There are many trading strategies that can quality as a scalping method. In this article, we will introduce you to a few forms of scalping strategies that are easy to understand and make use of price action as the basis of analysis. ( ? What is Price Action tarding? )
Scalping strategies based on PA (Price Action):
In this form of scalping, the primary elements of analysis are based on support and resistance. ( ? Support and Resistance Definition ) This scalping strategy can be ideally applied to 30minutes or 1 hour timeframe charts. However, before switching to these timeframes, it is important to understand the primary trend. Therefore, first check on the daily and H4 chart intervals for the trend.
After identifying a downtrend in the daily chart interval, we now switch to the H4 charts. The region marked between the two red vertical lines, are the areas which we focus for our trading. On the H4 charts, we also notice a downtrend and therefore plot a down sloping trend line.
After identifying the support and resistance levels, we then switch to the H1 chart interval. In the chart below, we notice how the chart is set up. When price retraces to the previously known resistance level, it is indicative to take a short position. This short position is in tandem with the trend on the daily charts and the H4 charts.
The target level for the short position would be the previously identified support level. After the bounce from the resistance level, price continues in a gradual downtrend before reaching the specified support level, which is also our area of taking profits.
For this price action based scalping strategy to be effective, traders should be able to identify support and resistance levels correctly. Also a bit of patience and discipline is required along with some confidence in their trading analysis.
In the example above, after the short position was triggered, there were moments when price tried to rally but failed to reach the previous high. These moments of price action in real time would have tested a trader’s confidence. Those who would have closed their positions due to fear would have lost out on a great trading opportunity.
In this type of scalping strategy, the first step is to identify the trend for the chart interval that you intend to trade. After the trend is identified, plot a trend line accordingly. The basic premise of this scalping strategy is to trade the break of the trend line. However, we make use of the Fibonacci levels to target the price levels.
In the chart below, we look to the H1 chart interval. Here, an uptrend was identified and therefore a trend line was plotted connecting the lows. While waiting for the trend line to be broken, using the Fibonacci retracement tool, we plot the swing high and low points during the uptrend. Having gotten the Fib values, we first wait for the trend line to be broken.
After the trend line was broken, place a short trade at 38.2% Fib level, targeting 61.8%. Notice how price promptly dropped towards 6.8% Fib level.
Besides the Fibonacci retracement tool, another factor that might be missed is that the 61.8% also shows a previous support/resistance level. Once price reaches the target of 61.8% it promptly reversed the momentum.
With this type of a price action based scalping approach, it is essential to be patient for the right conditions to form. For example, despite plotting the trend line, a trader wouldn’t be too sure when the trend line would be broken. Therefore, patience is an essential element in this scalping strategy.
Combining candlestick patterns to the entry could further enhance this scalping strategy.
Using the same example, instead of shorting the pair directly after 38.2% was approached; trading when the dark cloud cover candlestick pattern was formed would offer a higher chance for the trade to reach its target.
In this form of scalping, trades are based on short term candlestick patterns. To be successful with this form of price action scalping technique it is very important that the trader is familiar with the various candlestick patterns. While there are too many candlestick patterns, it is prudent to pay attention to only the most important candlestick patterns such as engulfing bars, dark cloud cover/piercing line candlestick patterns and so on.
The chart above shows the trade signals based on the candlestick patterns that were formed.
As seen in the above examples, it is very simple to scalp the markets based on price action, rather than having to rely on various combinations of indicators.