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scalping forex .pdf



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Scalping When I first started trading forex, I was the same as
everyone else in that I would make a few pips and then close the
deal. Although this approach worked a lot of the time, in the
longer-term it was unsuccessful. I had occasions when my whole
account was wiped out. What I didn't know was that this style of
trading is actually called scalping and my lack of experience and
knowledge prevented me from using it properly. I then became a
positional trader and would open positions for three of four days
with the aim of getting at least 100 pips of profit.
Again,
this would work for a number of years and I was mostly
successful. However, things all became very different after I had
met a trader who used only the one strategy year after year. This
was forex scalping systems. He was enjoying huge profits; a lot
larger than my own but in the same timeframe to me and with
account sizes that matched his broker. I asked him if he could
tell me his approach and the key points he used to help trade.
When we met, he showed me his trading technique and why he would
buy or sell at specific times. We spent three days together and
what I found most surprising was how I understood all of what he
told me. Without wishing to sound dramatic, his trading style was
very basic. He didn't need to spend long looking at the current
market conditions and neither did his system need indicators or
oscillators. After having taken in what I could in those three
days, I gave it a go myself and the results were incredible. In
less than three weeks, my account had grown by over three times.
And this was achieved in less than 4 hours per day.
The
advantages and disadvantages of scalping
Essentially scalping
is all about making many trades within one day using small
timeframes that garner smaller profits - no more than a few pips.
Position traders will have to undertake a lot of market analysis
and preparation before starting a trade whereas a scalper just
uses a single signal before they enter the market. He makes his
profit and gets out just a few seconds later. Furthermore,
position traders will have to leave their trade open for several
hours or even days scalpers will hold open positions for minutes
or seconds. What's different is that this will happen lots of
times throughout the day. Scalping is known as being like
picking up loose change but a lot of it. Position traders will
look for the big profits in one hit whereas scalpers take many
little profits. Amazingly, scalpers will frequently see their
profits exceed that of the position trader over the same term and
would normally expect to pull in between 5% and 10% in a trading
day. So what are the advantages of scalping? In my opinion, the
advantages of scalping exceed the disadvantages and my view is it
is more attractive because it is more profitable than position
trading. Specifically I would say that the benefits are: 1. You
have larger profits than a position trader would. 2. Strong
trends are irrelevant with this strategy so waiting for one is
unnecessary. 3. It becomes pointless trying t to analyse or
forecast the market. 4. When the trading day finishes, all of my
positions are closed and I am not concerned about whether the
market will turn against my positions overnight. . But what are

the disadvantages of scalping? As with all trading systems,
there are disadvantages to scalping. Pay attention to this next
bit as it's serious stuff: 1. When you scalp for 4 hours, you
will find that your trading can be very tiring. 2. You can't make
mistakes with scalping. It is important to immediately understand
and dissect a situation and take clear, unemotional decisions.
On this point, there is a significant difference between position
trading and scalping. Position trading risk management dictates
that you use no more than 10% of your capital when engaged in
trades. With scalping, this doesn't apply and sometimes 50% or
more is used. And when you are scalping you need to be
constantly monitoring how the market is reacting, make snap
decisions before leaving the market. And not make any mistakes.
So what are the main indicators for entering the market?
Scalping's main issue is the ability to identify the support and
resistance levels which forms the basis for the whole system of
trading. From my time trading this way, I have noticed that the
currencies will rebound from resistance and support levels. This
will often be only a small amount but usually enough to make some
money. But you might be wondering how this is different from
position trading as defining the support and resistance levels is
what position traders need to do as well?. Simply put, there are
many differences. Traders that define support and resistance
levels and the trend channel will also need to have a 2-point
minimum to build up strong levels while simultaneously using time
frames of no less than 1 hour. LR-Channels Indicator is the best
indicator to define the trend channels. Scalpers can ignore this
because as long as they have a trading level that uses a 1 minute
timeframe they can work without large bounces as they only need
one point to make a profit. As markets keep changing, trend
breaks can cause losses to some traders whereas scalpers will
pickup the small profits. Quickly identifying the required
support and resistance levels is a big factor when scalping. A
good tool for doing this is BJF support resistance levels
indicator. Next up we will look at:
Support and resistance
levels It's vital to remember that when you are scalping you
must be very precise when determining the accurate resistance and
support levels across timeframes from one minute to one hour
instead of following a more classically accepted approach to
technical analysis. IMAGE A 5M timeframe has been used here and
it's clear to see that the level of support has been formed.
IMAGE
A 5M timeframe has also been used here and it's clear to
see that resistance levels have been formed. In both of these
diagrams, the higher and lower levels have been clearly formed.
Forget about the fact that there is a five-minute timeframe - the
important point to remember is to determine the levels of any of
the timeframes and the difference is practically negligible. If
a larger timeframe is used then there is a direct correlation to
the amount of money used to come into the market. This will be
looked at more later. Being able to accurately define the
support and resistance levels needs answering. The graphs we
looked at earlier give the most typical illustration and this is

an interesting point for any scalpers. IMAGES These next images
are just like the same picture but slightly longer.
We can see
that the pair of currencies did return to the support and
resistance levels and then rebounded. How do we get a profit?
Money is made by buying or selling as the support and resistance
levels are approached. Looking at the resistance level diagram,
the resistance level is touched by the currency and in the short
term it rebounds. This could have given us two sales. So how are
the levels defined? We now know that we must define support and
resistance levels when scalping. So now I can share with how I
think they can be defined. The level is set where the price
falls at the spot where the bounce could go to either one side or
the other.
The direction of the next bounce has a 90%
probability according to technical analysis. Here is an
appropriate juncture to make another comparison between position
trading and scalping. Position traders look for those instances
where the price bounces by a minimum of 100 pips in the required
direction - not 20 to 30 pips. Bounces of this magnitude are not
as common as those that happen with 90% probability that have the
20 pip price jump to then go back to the level only to jump again
by 15 pips to then possibly have an unfavourable bounce or maybe
break through the level. Every scalper has a goal to collect all
of these bounces into their account. As we continue to determine
the levels we can assess the criteria by taking a number of
timeframes although their definitions will remain constant.
Defining of 30M and 1H levels The 1H and 30M charts are the
easiest ones to trade on and you take the highest and lowest
points on the diagram for your trades.
Currencies will often
hang between these points so we need to draw up resistance and
support lines and wait for the currency pair to move to either
level. The currency pair can sometimes look as though it is
trapped and can't move from this position. Although with the
currency below the lowest point or above the highest point, you
should mark it and wait while the currency pair gets near.
IMAGE- Defining of trade levels on 30M and 1H
Defining of
levels on 1M 5M 5M and 1M trade levels aren't marked the same.
Here the highest and lowest points obtained within 3 or 4 hours
will be noted and the trade levels will be stated then meaning
any trade operations are processed once those levels are
achieved. Entry rules
The 1M and 5M requires you to buy or
sell according to the price hitting the trade levels as it nears
the support or the resistance line. However with 30M and 1H this
changes. The issue here is that these levels are more powerful
and can be seen by a lot of people which is why more people will
enter into the market before the price is able to get near to the
current level and the bounce arrives too quickly. So I will
trade despite prices not approaching the current level and often
I will close with between 5 to 20 pips of profit. There might be
times when the price hits the level indicated and this is where I
would open up a new position using a double lot. IMAGE This
image shows that the price didn't reach the marked level on 14
pips.
Volume of market entry Similar to the definition of

levels of trade, volume at entry needs to be considered with
scalping. You do need to know this but it's not complicated.
It's clear that the greater the volume when entering the market,
the greater the amount of profit per pip. By the same token we
make a loss on each unprofitable trade. So we know that scalping
can make for big profits and losses and needs a different
approach to capital management. It's preferable to make the most
profit possible and suffer the smallest losses which is why we
should only enter the market with large volumes when we have a
lot of confidence that a bounce will take place. We can get this
confidence from 30M and 1H and this can be summarised by: A
larger frame brings bigger volumes and smaller timeframes gives
smaller volumes.
Our concern is to get hold of specific
figures; namely certain volumes in a certain timeframe.
If I
had a trade deposit of 5K, I would be using these volumes with my
trades: 10% to 20% on the 1M and 5M deals 20% - 50% on the 30M
or 1H.
So what if the currency pair does not go our way?
You
can't relax with scalping as it is high risk. A position trader
could take the hit of a loss but a scalper can't as the volume he
trades with is a lot bigger and should a losing position remain
open longer than necessary, big losses can result. As a rule,
any position that is showing a loss in excess of 25 pips should
be closed apart from any that were opened with less than 10% of
the deposit. These ones should be closed down only if their
losses get to 50 pips. Profit targets Scalpers make money by
taking smaller profits frequently and make up to several hundred
trades in a day. So while the focus remains on the many smaller
profit-making deals, the larger profits are not pursued. I used a
trading strategy for scalping the yields profits of between 5 to
20 pips and these are driven by the behaviour of the currency.
If a bounce happens quickly as a specific level has been achieved
my aim will be 20 pips. But I will fix the profit at five pips if
the bounce is slow. How currencies can behave when specific
levels are reached If a support or resistance level is reached a
currency may respond differently. Occasionally a swift bounce
will happen; there might be a minimal movement exactly around the
level indicated. So we can now claim to know about responding on
each level but some more points need to be made. Once the bounce
has happened and the position has been closed, wait for a short
while before going back into the market as there can be quite a
significant bounce. Because currency will continue to maintain a
certain trend, we should hang on until the point reaches a limit.
You can often repeat a bounce deal as the currency will often
head towards the level it has just rebounded from again. As the
currency pair repeatedly approaches the support and resistance
lines, this deal can be repeated many times. Some vital factors
about scalping
Even though scalping is easy you should always
remember some vital points when scalping. You must look at the
economic event calendar before you start to trade. Trades can be
impacted by news and bouncing may not occur even with strong
levels of trade. 2. Position trades and scalpers need to become
devoid of emotions. Scalpers trade with larger volumes so need to

be more vigilant. You can't outplay the market and you will make
losses if you try. 3. Don't start unprofitable positions so
close losing ones. You must adopt the stance that throughout the
numerous trades in the day your losses will be covered by your
profits.
4. Things can change instantly so never move away from
your computer. You will need to be present to quickly make
decisions. But the simplest way to start forex trading is to use
an automated trading system and for this I would recommend the
Forex Robot TFOT.
Some advice when picking a broker Scalping
needs to involve a broker so look for: 1. Narrow spreads like
0.8 - 2.5 pips for GBP/USD and 0.8 - 1.5 on EUR / USD 2. A very
high speed of trade execution command Scalpers are not favoured
by all brokers and you might find some that will look to prevent
a people from using scalping. There are some that might stop
scalpers getting a profit. Avoid them. If you cannot have a fast
trading execution trade, you won't be able to scalp successfully.


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