It seems the latest and greatest trend for people is Forex, and the more I research the more I hear and learn about scalping. I'm no expert by any stretch of the imagination, but Jason Fielder from TriadFormula.com seems to have the lowdown on how to do it...and how to do it right! I've asked him to come and break some of his methods down for us so we can continue to diversify and stay profitable! As always the comments are open and Jason is looking forward to answering any and all questions.
If you are currently scalping FX markets (or are planning to), there are certain universal rules that you simply need to know to survive. Beyond these rules exist another level of knowledge that very few traders possess...
Scalping the Forex market brings certain challenges that you don’t have when trading on larger time frames. For example, if you are trying to take 100+ pips out of the market with a spread of 2 pips, the cost of this trade is only 2% of the total. Now, if you are scalping for 10 – 15 pips with a 2 pip spread, the cost of this trade is as high as 20%.
So, if you are going to be scalping the Forex market you need to be very strategic with your approach, or you will get eaten for breakfast. There are literally hundred of sharks out there in the form of highly skilled professional traders, and large banks that are waiting to prey on the individual retail trader like you, who so often have no clue what they are doing.
For the sharks, you are easy prey, and easy profit, and your loss is always their gain. They literally profit on all of your losses, and for them it's like shooting fish in a barrel.
So in order to avoid being the prey, you need to have a solid understanding of how the markets work. Armed with the right knowledge you will not only be protected from sharks, you will also be in a power position that will allow you to consistently scalp profits out of the market over and over again.
You also will be far ahead of the large majority of the other traders out there who “think” they know how the markets move, but so often don't.
There is a method to the madness of what some people think are the “unpredictable” Forex markets. Once you understand how the markets flow, you will begin to see them as I do, and the mystery will start to unravel itself to you.
• There is a somewhat of a “code” to the markets
• There are “loop holes” that exist as well.
Here is one example of several that I teach that will give you a better understanding...
Counter-Trend Scalping During Choppy Markets
Most traders don’t think about scalping during choppy, ranging market conditions, but this is one of the best and most consistent scalping trades I take.
The first thing that you need to ask yourself when scalping choppy markets (a.k.a. counter-trends) is:
When are choppy/ranging markets most likely to occur?
The best times that I have found to scalp the market using counter-trend strategies are:
• Off-Hours Trading (Specifically between 3:00pm and 7:00pm EST)
• Pre-News Trading (12 to 15 hours before a large news announcement)
These time-frames may seem a bit odd at first glance, but if you think about it a little more closely they make perfect sense!
Lower market activity typically results in choppy markets. And since choppy markets are what we’re after, then off-hours trading (i.e. when the banks are closed) and pre-news announcements are some of the most predictable times of “chop” because these time-frames have some of the lowest trading activity of all!
Between 3:00pm and 7:00pm eastern standard time is when all the world banks are closed. The U.S. banks are closing their doors and the Asian banks have not yet opened. This is a great time to scalp the market using a counter-trend strategy, because no larger banks are moving money (i.e. the markets) at that time.
Without the banks around to move the markets, the currency pairs will become “choppy” and begin moving sideways in a fairly tight range. And it’s these tight ranges that are the ideal scalping environment…when you know what you’re looking for.
For more detailed information on my scalping approach, and several instantly useable strategies check out this forex scalping cheatsheets report that I've made available for FREE to Trader's Blog readers.