Scalping - Six Trading Strategies

From our perspective, trading is just like walking along a shallow pond where lots of small coins are on the bottom. You walk and pick coins one by one; however, there is a risk that you can stumble, fall, lose everything and get wet.

Scalping

Scalping is a short-term trading method, which implies making profit from very short-term transactions, which only lasts a few minutes.

In this article we will look at those forex scalping strategies that work within the definition of scalping. These approaches provide a high probability of making profits, the smallest of stops and profit milestones that have already been set.

As one of the most successful trader-scalpers once said, scalping can give you the opportunity to make a million dollars by making a million transactions. Risk management

Scalping entry techniques are quite simple but the aspect of risk management is very important.

Risk management rules are essential and must be closely followed especially when things don't go as planned. As long as stops for this system are quite strict, a trader should either exit fast or already have orders placed on the market. In this case you should learn to exit with minimal losses before they become much greater.

The three scalping categories

1. Play on time There are two types within this category: Play using breakouts, quickly scalp at the breakout of a price range for just a few minutes in a chosen direction that the market moves in. - Play at the point that the market has a significant movement (e.g; using the 10.00 or 15.00 New York time).

2. Trade against a trend When there is an indefinite market trend during a session the transactions are made at definite moments.

3. Trade along a trend Trade on retracement.

In our view the best forex scalping market is the S&P 500 futures market. This is because it is a very active, accessible and liquid market. Using scalping on the S&P 500 futures market, you can make a good profit.

Play on time

The Strategy - Opening range breakout of 1 - 15 minutes

Our favorite method and it only needs an internet connection to your broker and phone. This 15-minute opening range breakout will be different from the normal opening range breakout as profit happens quickly and transactions last longer than a minute.

The model: You should wait for the very first 15 minute range to form Entry: Enter through a buy stop 2 ticks higher than the maximum of the first 15-minute range or through a sell stop 2 ticks lower than the minimum of the first 15-minute range Exit: Close a position having made 1 point profit Stop-loss: Make a 1 point loss or have the position open for one minute to exit Re-entry: You should look for a breakout in the opposite direction to occur. When this happens, the size of the stop should be doubled. The same rules of exit apply.

Chart 1

Have a look closely at each day's first 15 minute range breakouts. Profit was made on each of the 9 transactions.

Note: All charts show S&P 500 futures movements in August 2003. Circles and blue letters show the transactions that are profitable. Any transactions that were unprofitable are shown in red. The time here is Chicago time, +1 compared to New York.

The Strategy 2 - shake-up at 10 o'clock

As already mentioned, when it gets to 10 o'clock in New York, an attempt to reverse the morning trend often happens.

Model: Wait for the first 15-minute bar to close. You should be ready to open up a short position if the market gets to the day maximum with the first 30 minutes. If the market is near the day minimum, be ready to open a long position. Entry: On positions that are short, you should enter on a sell stop 1 tick beyond the last 15 minute bar minimum. On position that are long, you should enter on a buy stop 1 tick beyond the last 15 minute bar maximum. Exit: Close a position having made 1.5 point profit. Stop-loss: Exit at 1 point loss or one minute after opening the position. All orders that haven't been executed should be cancelled after 10.30 Re-entry: Not applicable

Strategy -3 - shake-up at 15 o'clock

An attempt to reverse will often happen in the S&P 500 futures market when the US bond market closes at 1500 New York time.

Buy model: Place a buy stop if the market had been moving down for 30 minutes before 15:00. Sell model: if the market moves upwards for half an hour before 1500 then a sell stop should be placed. The rules for exit and entry are the same as for the model before. You should cancel all orders after 15.30. Re-entry: this is not necessary

Chart 2: 10 o'clock and 15 o'clock see S&P 500 shake up transactions

The blue horizontal lines indicate entry levels. All of these were profitable transactions. Tuesday and Wednesday had no signals for performing transactions.

Trade against a trend

For scalping short-term market movement changes we use 10 minute time intervals.

Strategy - 4 - cent collector

The model: Use 10 minute candle charts and look for bearish and bullish 'swallowed' candles. The following picture shows a classic model of 'swallowing'.

Entry: Time limits - perform transactions only within the first and the last hours of trade In bullish swallowing situations when the white body of the existing candle is over the last black candle's maximum you should buy. In circumstances of bearish swallowing when the last white candle's maximum has the black body of the current candle's minimum below it you should sell. Exit: Close a position, having made 1 point profit. Stop-loss: Exit at 1 point loss or 30 seconds after opening the position.

Chart 3: Cent collector (only at the first and the last hours of trade).

From the example given there were profitable transactions in 14 out of the 15 cases.

Trade along a trend

Strategy 5 - standard deviation and scalping

Another name for re-entering at retracement. This is a simple strategy to understand as you only enter the market at major retracements,

Model: Put a moving average with period 10 over a 10-minute candle chart. Draw lower and upper limits with a standard deviation of 1. Entry: In case of an ascending trend, we buy on downward retracements, which touch the LOWER range limit, provided that the range is inclined upwards. In case of a descending trend, we sell on rally, which reaches the UPPER range limit, provided that the range is inclined downwards. Exit: Close a position, having made 2 points profit or if the price touches another limit (happens more often). Stop loss: If there is a change in the range's incline you should exit or use a 1.25 stop-loss.

Chart 4: 10 of the 14 transactions made profit within 3 days on S&P 500.

Strategy 6 - ANTI strategy

This strategy was developed by Linda Raschke.

Model: A slow stochastic and period 7 is used and the moving average with a period 10 acting as a filter of trends on a candle chart of 5 minutes. Entry for buying: when the stochastic is to cross the moving average going upwards at a closure of 5 minute period you should buy. Entry when selling: with the moving average going downwards at the closure of the 5 minute period you should sell when the stochastic crosses it. Exit: Close a position having made 2 points profit. Stop loss: When the position has been opened for 3 minutes or there has been a 1.5 point loss you should exit. Re-entry: It is not necessary here.

Below you can see five profitable transactions within three days using the ANTI strategy.

Conclusion

We have taken a look at the 6 scalping strategies and their strict risk management rules. Avoid the temptation to earn more money by keeping transactions open longer than you should and be prepared to lose sometimes.

The given strategies don't allow considerable profits to be made all at once. Anyone who is content to make small and stable profits will suit these strategies.

Just imagine if you were to use all 6 strategies every day. The chances of the last three strategies being profitable are roughly 75% whereas the first three work without fail. For a one lot trade on E-mini S&P 500 the average profit may be 200 dollars per day. This seemingly small return should not be treated lightly. This will look very different when you have traded this way with 10 lots.

If you know what you're doing you can always earn enough money (of course, if you close positions in time in case of possible losses). Remember: Make a million dollars with a million transactions.