Monday, 30 November 2009

Forex Scalping Trading Systems

There are many successful ways of trading the Forex markets. Some traders swing trade where their anticipated hold times are from a day to a week+. This requires having a wider stop and usually has less than a 50% win rate and because of the wider stop the trader must trade very small lot sizes in order to protect their capital. Some traders look for intraday trends that last 30 minutes to 3-5 hours. This can have a much higher win percentage, over 50% and much tighter stops so a trader can trade more lots than with swing trading and there are many systems available that find 30-100+ pips per day.

This article is about Forex scalping techniques. Scalping is when a trader has a very short hold times and expects to make only 10-30 pips on most trades. Because it is a very precise way of trading, traders can have super high win rates of 80% and higher! Also, because the hold times are often 10 minutes maybe up to an hour or an hour and a half, traders who have full time jobs and are trying to trade the Forex for additional income or retirement savings can fit it into their busy schedules easier than any other form of trading.

The most important concept in ANY form of trading is to keep losses small and have bigger winning trades than your losses on average. But with scalping, due to its higher winning percentage when done correctly, a trader can get away with winning trades the same size as losses. So say your stops are 10 pips, you can take 10 pip wins. The markets during the UK, Europe and US session move so much in most currencies that finding a 10 pip move in 10 - 60 minutes is not too difficult.

It's also not unreasonable to have 20-33% of your winning trades be for 20+ pips and this also makes this method not only profitable but also a lower stress way of trading because the trader knows real fast if the trade is likely to work and if not will exit with a 2-5 pip loss instead of 10 or often times a 2-5 pip win as the trade stalled out and its always better to take a small win than to let the trade go negative!

There are many statistical tools I use to know which currencies are most likely to go up and to go down, but for traders who are using just regular charts you can look at a currencies daily chart and if the trend is up then FOCUS on buying that currency when scalping and when down focus on selling.

So once you know the longer term trend, look at today's trend. Bring up a 60 minute chart and put on 20 period simple moving average. If the currencies daily trend is up and today its above this moving average you want to look for buys. If the daily trend is down and today price is under the hourly moving average you want to look for sells.

The next step is the EXACT entry and exit method. Once you're trading in the direction of the longer term trend and use the FILTER of the hourly MA then this is the easiest part. Wait for a SPIKE move in the direction of trend. Then on next pullback draw a trendline over/under the bars highs and/or lows. If the trend is up and spike is up, wait for a down move of at least 15 minutes and draw trendline over the highs. When price breaks out up you buy and stop is 2-5 pips under the swing low. Exact opposite for sells, wait for a spike move down, then a pullback up move. Draw trendline under the lows and when broken enter.

Another method of scalping is to draw Fibonacci retracements and profit targets on chart. Use the trendline approach when this support/resistance is hit and enter upon trendline breakout. What I do and recommend to our traders is using 50 tick charts and use 2.2 keltner channels. If trend is up as described above buy the lower band. If trend is down then sell the upper band. You can exit scalp trade at other end of the bands or trail stop up.


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