Scalping, which takes between seconds and a few minutes is one of the most popular strategies. This is because high leverage on the foreign exchange market gives more opportunities to traders using scalping strategies. Using high leverage, the speculator is required to pay a small margin, which is often around 1% of the order value. The amount of the margin depends on the currency pair and your broker.
What is scalping? The scalping methodology below uses short-term moves to generate a positive return. This is just about a perfect description of a successful scalping trader. Scalpers are happy with the labour-intensive nature of forex scalping and a forex scalping strategy using Bollinger Bands is a prime structure.
This trade takes place in one of the more commonly traded crosses, GBP/JPY. This system, by definition, is a short-term Forex strategy that does not identify a trend but focuses on momentary price deviations to achieve profit. It works perfectly on STP / ECN accounts with low spreads and commissions. Due to the low target levels, the strategy is not justified for use in accounts where there is a difference between bid prices and ask for more than 2 pips. The short-term price volatility of the market in general and in GBPJPY, in particular, lends itself perfectly to a scalping strategy. Scalping does not bow to trends so forex scalping strategies are immune to longer (even M30) term trends.
Tools used in a GBPJPY scalping strategy (equally applicable to other volatile pairs.
A Bollinger Bands Scalping Trading Structure uses a one minute (M1) or 5 minute (M5) GBP / JPY chart on which the trader finds certain setups. Choosing an interval is dependent on the speculator and his individual goals as well as the time that he can devote to tracking the graph. This following strategy uses the following tools:
- Bollinger Bands – 50 periodic; Standard deviation – 2 (red)
- Bollinger Bands – 50 periodic; Standard deviation – 3 (orange color)
- Bollinger Bands – 50 periodic; Standard deviation – 4 (green)
Entry into a position
The Signal to take a short position appears when the price, after piercing the upper red band and reaching the minimum halfway between the red and orange band, returns to the upper red band. Should the price move from the red upper band to the upper green band, the signal is stronger. Alternatively, a signal to take a long position occurs when the price, after piercing the lower red band and reaching at least half the range between the lower red and the lower orange band, returns to the lower red band.
That is an exact description of the price moves in a scalping strategy. It is much easier to understand in practice. Use a dummy account to perfect the technique before risking capital. It is easy to get carried away or frustrated if you cannot spot the setup straight away.
Exiting a position
This strategy determines a closing position with a target of 5-10 pips. Stop loss and take profit levels are set at the same interval. This means that the average risk/reward ratio is 1:1. A positive value of the systems close the transaction at a time when the price returns to the 50-period moving average. In addition, this strategy attaches significant importance to the duration of the transaction. The closing position should be at the point where the transaction has lasted more than 3 minutes. It is then closed regardless of whether it is profitable or loss. This is roulette-style trading at its best but scalpers swear they make money. It takes practice determination and more than a little skill to be successful.
Money management
Scalping is a strategy that provides a high-level of trades every day given the low interval.
It is therefore recommended that the risk is only a small percentage of the available capital. Ideally, it is no more than 0.5% of the capital available. In that way, a series of loss making trades can be absorbed without the risk
