Thoughts On Scalping

March 15, 2007

I’ve read a lot of negative things on the internet about trying to scalp FOREX. Many say it can’t be done profitably over the long term. But, that might not be so true if you go about it in the correct manner. And simple is probably the best way to do it. Too many traders get indicator overload, and we all know that most indicators are lagging, so if you’re looking for a quick scalp most times they are useless (such as oscilators, etc.)

I think if one follows the following steps, maybe scalping can be successful. When talking of scalping I’m refering to gaining about 5-15 pips and doing it on a high percentage of successful trades.

Step. 1 You have to have a broker with a narrow spread of preferably no more than 2 pips. Maybe you could get by with 3 pips.

Step. 2 Make sure it is a broker that has straight through passing of your order to the interbank network. Stay away from MM’s like REFCO/FXCM who hold on to your order, trade against you and widen the spread in their favor after you open a position, especially if they suspect you’re scalping.

Srep. 3 The best place to open a position is when price first reaches good support/resistance for the first time because it will get rejected a high percentage of the time, so you would fade these first attempts at good support/resistance points. If you want to be more conserative, only take scalps that are in the same direction of the overall trend or bias for that day. This should make winning trade percentage much higher. If the trade doesn’t go in your favor pretty quickly, get out and wait for the next one. You have to cut your losses quickly.

Step 4. Only trade during the busy periods, such as London 2:00 AM – 5:00 AM or New York 7:00 AM – 11:30 AM. You have to have enough volume in the market to get prices to move.

Step 5. Set a daily goal (in pips). Once you reach it, stop trading for the day. Don’t get greedy and end up giving back what you made. Also set a daily loss limit and if you hit it, stop trading for the day.

I know my plan sounds rather simple, but like I said simple is sometimes best. The keys to this strategy is determining good support and resistance points for that day and when to get out and take profits. From my observations good S/R do not get taken out on the first attempt a very high percentage of the time, especially if it is going against the trend. I think taking profits comes with experience, you have a “feeling” when a move or retrace is starting to die out. Fibs. are a possible good tool for this. As for time frames, probably 1 and 5 min. are best for scalping.

Anyone got any ideas or thoughts, feel free to post.

Thanks;

JohnFX

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