The Forex market is the largest and most liquid financial market around. Amazingly, over $5 trillion (that is huge!) worth of currencies is traded in it every day. Thus, it is an undeniable avenue to reap bountifully. Expectedly, there are loads of cash to make. However, shockingly, for most people who participate in it, the opposite is the case. Most of them lose instead of gain!
Why is that so? Many theories have been proposed. Of notable importance is strategy inconsistency. It turns out that if you want to succeed in the Forex market, you have to be willing to always base your decisions on a sound strategy. That is, ever before you take your first trade, you should develop a strategy and diligently stick to it.
Trading the Forex Market
There are multiple ways for trading Forex signals. You can choose to be a day trader. That is, you can choose to be reaping gains every day by opening, holding, and closing all your positions in hours all in a day. Conversely, you can become a position trader. Position traders are those that hold their trades for weeks or months.
Also, you can be a scalper! Fast-paced, scalping requires you to analyse the market and identifies optimal entry and exit points to reap small profits several times in a day! “It is the little drops of water that make the mighty ocean.” That is the working principle of scalpers. While the scalping way can be a challenging one to take, it can really be worth it.
Hence, in this article, we will be discussing a proven scalping strategy that can be fetching you a lot in returns. So, take your time to learn.
Step 1: Use a higher-time frame chart to confirm the direction of the predominant trend.
First, importantly, you should note that the principle of this strategy is this: the trend is your friend. Hence, you must seek to identify the trend, trade in its direction, and then wait for any pullback. The pullback is to help you confirm the trend before you make any move. Else, you can be caught up in a zig-zag pattern of the price.
In determining the direction of the trend, you should combine a shorter-time frame (e.g. 5-minute chart) and a higher-time frame (e.g. 1-hour chart). Thus, you will be identifying the trend using the shorter-time frame, while using the higher-time frame chart as your confirmation chart. This confirmation chart helps you to understand the direction of the trend.
The confirmation chart displayed here, the anchor chart, serves to confirm the predominant trend. The two exponential moving averages (EMAs) on it help you to do that.
Step 2: Analyse the Confirmation Chart.
The two exponential moving averages (EMAs) on the confirmation chart are the 8 EMA and the 21 EMA. The two are integrated into the chart to help you determine market direction and, therefore, the specific action to take. That is, once you have been able to confirm the trend, what do you do? Do you buy or sell? Analysing the EMAs helps you to decide.
When the price is below both EMAs with the 8 EMA being below the 21 EMA and both pointing downwards, then you should be looking for sell signals. Conversely, whenever the price is above both EMAs with the 8 EMA being above the 21 EMA and both moving upwards, then buy signals are more probable. Thus, the important thing is to look for the direction of the trend and the position of price in relation to it.
Once you have authenticated the direction of the trend with the higher-timeframe, you can then check it on the shorter time frame, the 5-minute chart.
Step 3: Use the shorter-time frame chart to analyse your trade.
So, how do you determine the exact entry or exit price? The 5-minute chart will help. On this chart, there are three EMAs which are 8, 13, and 21. After the confirmation of a buy trade on the 1-hour chart, you should look for the trigger bar on the 5-minute chart. This is the bar that touches the 8 EMA. From it, you should then count back five candle-bars. The highest of them is your entry.
The 3rd bar here, the highest of the five, is the entry point.
If it is to be a sell signal, first, the price will be below the three EMAs. Then, you wait for it to pull back to the 8 EMA to form the trigger bar. From there, you should then count back five candles to find the lowest of them. That is your entry.
The 3rd bar here, the lowest of the five, can be taken as the entry point.
Risk Management in Scalping
The importance of adequate risk management in Forex trading cannot be overemphasised. In scalping, it cannot even be more so. And as no strategy is foolproof, you should always put measures in place to protect your money.
For example, when a buy trade is called, you can put your buy and stop orders 3 pips above and 3 pips below the trigger bar respectively.
Likewise, if it is a sell call, you can put your sell and stop-loss orders respectively 3 pips below and 3 pips above the trigger bar.
Finally, no matter the strategy you choose to use, you might want to boost your success rate by using a signal service. 1000pip Builder prides themselves as the best around. You can subscribe to their membership here.