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by MiriNich Tech
Updated 17 Jan 2025
Scalping trading is a lightning-fast strategy for those looking to capitalise on fleeting price movements in financial markets. Traders dive in and out of positions within minutes, armed with tools like technical indicators and candlestick charts to pinpoint trends. While the potential for profits is significant, the approach is not without challenges—it demands sharp focus, quick reflexes, and the discipline to manage risks effectively. Platforms offering forex cashback programs for seasoned scalpers can enhance profitability by offsetting trading costs. With its blend of high stakes and rapid rewards, scalping trading is a strategy that rewards precision and speed.
You might have heard of scalping trading if you're interested in trading. It's a strategy where you aim to make small profits from frequent trades by buying and selling securities or other financial instruments.
Scalping is a short-term trading strategy that involves buying and selling securities or other financial instruments to make small profits from frequent trades. The idea is to enter and exit trades quickly, often within seconds or minutes, to take advantage of small price movements.
Scalping trading is a high-risk, high-reward strategy requiring much skill and discipline. Here are some key characteristics of scalping trading:
Frequent trades: Scalping traders make many trades quickly, often entering and exiting trades within seconds or minutes.
Small profits: The goal of scalping trading is to make small profits from each trade. These profits may be small but can increase over time if you make enough trades.
Tight stop-losses: Scalping traders use tight stop-losses to limit their losses. They will exit a trade quickly to minimise losses if a trade goes against them.
High stress: Scalping trading is a high-stress strategy that requires concentration and focus. Traders must be able to react quickly to changing market conditions and make split-second decisions.
Scalping trading has both advantages and disadvantages. Here are some of the main pros and cons:
Advantages:
High potential for profits: If you're successful at scalping trading, you can make much money.
Active trading: Scalping is a good strategy for traders who want to be active and make frequent trades.
Small losses: Because scalping traders use tight stop-losses, their losses are generally small.
Disadvantages:
High risk and some stress: Scalping trading is a high-risk strategy. Any small mistake or delay can result in significant losses, which can be mentally and emotionally exhausting.
Requires skill and discipline: Scalping trading involves a lot of talent and discipline. Traders need to be able to react quickly to changing market conditions and make split-second decisions.
Scalping trading can be lucrative if you approach it with the right mindset and tools. Here are some tips for developing a successful scalping trading strategy.
You must identify short-term trends and price patterns to succeed at scalping trading. This can involve using technical analysis tools such as charts and indicators to identify market patterns that you can exploit.
One standard tool used in scalping trading is the moving average. Moving averages help traders identify the direction of the trend and key support and resistance levels. By looking at short-term moving averages, you can identify trends and patterns to help you make profitable trades.
Another important tool for identifying short-term trends is the use of candlestick charts. Candlestick charts visually represent price movements over a given period. By looking at candlestick patterns, you can identify trends and price patterns to help you make profitable trades.
Scalping traders rely heavily on technical analysis tools to identify profitable trades. Charts and indicators can help you identify key support and resistance levels and entry and exit points for trades.
One popular indicator used in scalping trading is the Relative Strength Index (RSI). The RSI is a momentum indicator that helps traders identify overbought and oversold market conditions. It can also identify key entry and exit points for trades.
Another popular technical indicator used in scalping trading is Bollinger Bands. Bollinger Bands are volatility indicators that help traders identify potential market breakouts and identify key entry and exit points for trades.
Scalping trading works best with highly liquid instruments like forex, stocks, and futures. These instruments have tight bid-ask spreads, meaning you can enter and exit trades quickly and cheaply.
When choosing financial instruments for scalping, choosing familiar instruments that fit your trading style is important. Some traders prefer to focus on one instrument, while others prefer to trade multiple instruments.
Setting entry and exit points is a crucial part of scalping trading. To consistently make profits, you need to be able to enter and exit trades at the right time, quickly, and accurately.
One approach to setting entry and exit points is to use technical indicators. For example, you can use moving averages to identify support and resistance levels or oscillators like the RSI to identify overbought and oversold conditions.
Another approach is to use price levels, which are horizontal lines drawn on a chart that indicate areas where the price has previously shown a reaction. These levels can act as support or resistance and can provide entry and exit points for trades.
Setting entry and exit points requires a plan before entering a trade. This includes identifying a profit target and a stop-loss level. A profit target is the price level at which you will exit the trade, taking your profits. A stop-loss level is the price level at which you exit the trade if the market moves against you, limiting your losses.
Remember to maintain strong discipline. Emotional trading can lead to poor decision-making, resulting in losses. Having a clear plan and sticking to it can help you avoid making impulsive decisions.
Being informed might also be the key to successful trading. Try to stay up-to-date with news and events that can affect the markets. Sudden price movements can occur due to unexpected news that affects your trades. Therefore, you should always have a backup plan if the market moves against you.
In the previous chapters, we discussed the characteristics of scalping strategies and the various components that can be used to build a robust system. It’s time to dive into a practical example to demonstrate how these concepts can be combined to create an advanced and effective scalping strategy.
This chapter will show you how to develop a comprehensive scalping strategy incorporating multiple technical indicators, support and resistance levels, and price action analysis.
We recommend starting with a 5-minute chart, but you can also use a multi-timeframe approach to confirm the trend direction on higher timeframes, such as a 15-minute or 1-hour chart.
It doesn’t matter what trading instruments you use for the scalping strategy as long as they have very low spreads. We recommend using major currency pairs such as EUR/USD, GBP/USD, and USD/JPY, but you can also use GOLD (XAUUSD).
We will use five technical indicators and two chart-based tools with their inputs. However, remember that these inputs can always be modified to get better results
EMA (Exponential Moving Average): 8-period, 21-period and 50-period.
Bollinger Bands: 20-period | standard deviation = 2.
Stochastic Oscillator: %K period = 14 | %D period = 3 | Slowing = 3 | Levels = 20 & 80.
RSI (Relative Strength Index): Period = 14 | Levels = 30 and 70.
ATR (Average True Range): Period = 14.
Support & Resistance: Use horizontal levels, trendlines or Fibonacci retracement levels
Price Action: Candlestick patterns and formations
BUY Entry:
The 8-period EMA crosses above the 21-period EMA, and both are above the 50-period EMA.
The price touches or moves below the lower Bollinger Band.
The Stochastic Oscillator is below 20 (oversold).
The RSI is above 30 and rising.
The ATR is above its moving average (you can use a 10-period Simple Moving Average of the ATR).
The price is near a support level or trendline.
A bullish candlestick pattern (bullish engulfing or hammer) forms near support.
SELL Entry:
The 8-period EMA crosses below the 21-period EMA, and both are below the 50-period EMA.
The price touches or moves above the upper Bollinger Band.
The Stochastic Oscillator is above 80 (overbought).
The RSI is below 70 and falling.
The ATR is above its moving average (you can use a 10-period Simple Moving Average of the ATR).
The price is near a resistance level or trendline.
A bearish candlestick pattern (bearish engulfing or shooting star) forms near resistance.
Take Profit: Set a take profit target based on the ATR (1.5 times the ATR value)
Stop Loss: Set a stop loss at 1.5 times the ATR value or use the opposite EMA crossover
Never risk more than 1-2% of your trading capital per trade.
Use a risk-reward ratio of 1:1 or higher
Avoid trading during high-impact news events as they can increase your spreads and the slippages.
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Forex cashback is a rebate program allowing traders to earn cash back on the commissions they pay their broker. When you trade in the forex market, your broker charges you a commission, a percentage of the trade value. With a Forex cashback program, you can earn a percentage of that commission back in cash.
Forex cashback programs work by partnering with brokers to offer rebates to their clients. Once you create a new account on ArtisGain.com, validate your profile, and connect it with your broker’s account, you can start trading as usual, and our platform will pay your cashback earnings.
Using a forex cashback program can benefit scalping traders for several reasons. First, since scalping traders place a high volume of trades, they pay a lot of commissions to their broker. With a cashback program, you can earn a percentage of those commissions back, which can help offset your trading costs and increase your profitability.
Second, forex cashback programs can be a source of passive income. Since your earnings are credited automatically, you don't have to do anything extra to earn them. This can be especially appealing for scalping traders, who may not have the time or energy to pursue other income streams.
Third, some forex cashback programs offer higher rebates for traders with a high volume of trades. This can be a significant advantage for scalping traders, who will likely place more trades than other traders.
Finally, a Forex cashback program can help you choose a reputable broker. Since cashback programs only partner with regulated and reliable brokers, you can be sure that you are trading with a reputable broker subject to regulatory oversight. This can help give you peace of mind and protect your trading capital.
In summary, scalping trading is a short-term strategy for profiting from small price movements in the market. It involves placing many trades, typically within a few minutes or hours, and using technical analysis tools to identify short-term trends and price patterns. Successful scalping traders have a well-defined trading plan, manage their risk carefully, and control their emotions while trading.
If you're interested in scalping trading, it's essential to understand that it is a high-risk, high-reward strategy that requires discipline and patience. It's not a strategy for everyone; you must have realistic expectations about your potential profits and losses.
To be successful in scalping trading, it's important to develop a solid trading plan that includes entry and exit points, risk management strategies, and a clear understanding of your goals and objectives. You should also use technical analysis tools such as charts and indicators to identify short-term trends and price patterns and choose the right financial instruments for scalping.
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