Scalping is a popular term in the trading industry, and it is used in Forex trading as a means of trading according to technical analysis. For those who are starting to learn how to trade CFDs and Forex, this strategy is simple to learn and useful in trades. However, it does require understanding and time to be implemented correctly. Sifting through the jargon can be exhausting, which is why practice on free trades can prove beneficial.
Strategy variables
This strategy is designed for day trading and consists of opening a position for a short time to gain pips, after which the position is closed. This method is based on tight spreads and low commissions, as a large quantity of trades will likely be executed throughout the day.
There are four key factors to be considered when using this strategy: validity, time, indicators and sessions. The validity refers to that of each currency pair; the time is the given one-minute time frame; the indicators required are Stochastic 5, 3, 3 and 50 EMA/100 EMA (exponential moving average); and the suggested market sessions are the highly volatile New York and London trading sessions.
When first approaching this strategy or any other strategy, it is crucial to continue studying the market and how it works, and efficient risk management techniques are also needed. A lax approach is often a detrimental one as success is built on consistency.
Entering a long position
You will enter a long position when you are looking to purchase on the market. In order to do this, first wait until the 50 EMA is above the 100 EMA. Once the price returns to the EMAs, the Stochastic Oscillator must break above the 20 level. If all three of these have occurred, you will have an opportunity to open a buy order (long position). Even though this strategy has been researched and tested, it is essential to place stop-loss orders for financial security. The best place for stop-losses are around two to three pips under the low point of a given swing. Your exit point will then be between eight and 12 pips from your entry.
Entering a short position
To enter a short position and sell, you will need the 50 EMA to be placed under the 100 EMA. As with a long position, you should wait for the price to reach the EMAs. The Stochastic Oscillator must then break the 80 level from above before you open your sell order. As with a buying order, your stop-losses should be placed two to three pips below the previous low, and profits can be claimed between eight and 12 pips from the entry position.
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Benefits and risks
As with all trading strategies, the one-minute scalping strategy comes with advantages and disadvantages. You should analyze both categories before choosing the right strategy for you.
The benefits of this strategy are:
- Minimized risk as trades are only open briefly
- The small movements of these trades are easier to execute, especially for new traders
- The strategy allows for more frequent trades as they are smaller
- The strategy is suitable for both volatile and quiet market conditions
The disadvantages of this strategy are:
- Traders need a large amount of capital to start
- Novice scalpers might be at risk if they haven’t carried out research
- Several skills are absolutely necessary, such as quick thinking and advanced mathematical abilities
- Keeping a good risk-to-reward ratio can be challenging
- This strategy requires dedicated time and can come with increased pressure
Whether this strategy will work is ultimately up to each individual trader, as you must analyze your situation and assess whether or not it suits your trading style and goals. The one-minute scalping strategy has proven highly successful for this with the necessary understanding and skills. The key to mastering this method is hard work, dedication and determination, along with ensuring you limit loss and build your trading confidence.