Scalping Trading Strategy –CFDs Strategy

Scalping is the most active and the riskier of all the trading strategies.

Timeframe: One to a Few Minutes

Risk Level: Very High

Asset Classes: Forex Majors (highly liquid / tight spreads), Major Indices

Trading Leverage: 30:1 and up to 100:1

Charts: M1, M5

Technical Analysis: RSI, ATR, Bollinger Bands, Chart Patterns, Japanese Candlesticks

Trading Orders: Stop-Loss, Take-Profit

Introduction to Scalping Strategy

Scalping is based on technical analysis and aims to trade key price breakouts and short-term price retracements. Scalping involves making small consistent profits and cutting losses quickly. This practice is risky and it is not suitable for all traders. Scalping can prove profitable only for advanced and professional traders, and definitely not for beginners. Most scalpers trade the Foreign Exchange market where liquidity is huge and the spreads between ask/bid are very tight.

Requirements:

These are some basic requirements for implementing a scalping strategy:

  • Trade only assets offered in very tight spreads in order to limit your trading cost (i.e. EURUSD, GBPUSD, and USDJPY)
  • Join a Forex Rebate Plan to tighten further your trading cost (more on www.Forex-Rebates.com)
  • Use a very tight money management system and limit the use of capital leverage
  • Apply some basic rules for limiting your intraday losses
  • Trade with a high Reward/Risk Ratio (3:1 or even higher)

Scalping requires signing a trading account with a very competitive online broker. More specifically, these are some basic features of a competitive online broker:

  • Very tight spreads
  • Fast order execution
  • No Re-Quotes / Low Slippage
  • Broker allowing a tight distance between the Open Price and the Stop-Loss Order

Technical Analysis

The technical analysis when scalping the global financial markets includes mainly Highs & Lows and Major Trendlines. Moreover, you can use Bollinger Bands, ATR, RSI, and potential divergences between RSI and the price chart slope. Chart Patterns and Japanese Candlesticks are always very useful for scalpers.

But let’s see an example of an easy Forex scalping strategy.

FXCC Forex Trading

 

The RSI(21) Scalping Strategy (Example of Simple Forex Scalping Strategy)

For this scalping strategy we are going to use:

-RSI (21) on the M5 chart

-Chart Patterns, Japanese Candlestick Formations

First of all, we need to open a lot of different pairs in the MT4 platform so we have a lot of choices

  1. We apply RSI(21) on M5 chart on all Forex pairs
  2. Our Condition to trade LONG is RSI(21) has reached -70 and now it corrects above -70 (chart below)
  3. Our Condition to trade SHORT is RSI(21) has reached +70 and now it corrects below +70
  4. We use Chart Patterns and Japanese Candlestick Formations to confirm our entries
  5. We use the recent Highs or Lows for placing above or below our stop-loss orders
  6. We use a trailing take-profit orders to collect our potential profits

Chart: Examples of Long Trades when Applying the RSI(21) Scalping Strategy on M5 timeframe

RSI(21) has reached -70 and now it corrects above

Creating an Automatic Alert System to Scalp Forex

Scalping the Forex market requires a lot of time each day to monitor and to take advantage of each and every market opportunity. By using an Automatic Alert System on MT4 you can save tens of hours each week. You don’t need any programming skills to create your alert system. The best web app you can use is called EA Builder and it is free for creating indicators:

  1. Free for Indicators / Paid for building EAs
  2. Create Indicators for MT4, MT5, and Tradestation
  3. Very easy to create even the most complicated indicators (Graphical Interface)
  4. Receive alerts via Email, SMS, and On-Screen

» Visit the EA-Builder (Free for Creating MT4 Indicators)

 

Create Free and Export Indicators for MT4, MT5, or TradeStation to trade Forex, Shares, Indices, and Commodities

Scalping Strategy Pros and Cons

These are the basic advantages and disadvantages of the scalping strategies:

(↑) Scalping Strategy Advantages

√ You can achieve high returns

√ You can use an Automated Trading Strategy

√ You can maximize the payouts of your Forex Rebate Plan

√ No Interest Charges (SWAP rates)

√ Limited loss potential per individual position (tight stop-loss)

(↓) Scalping Strategy Disadvantages

x You can trade only highly liquid assets

x Extremely high-risk strategy

x Not suitable for beginners and semi-advanced traders

x Paying a very high trading cost

 

 

Scalping Trading strategy –CFDs Strategy

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