Scalping Forex Strategy for Beginners
Every day, thousands of new forex traders enter the forex market to make some money off the lucrative profit opportunities the forex market has to offer. While beginner traders can make money in the forex market, but to consistently make money, a trader should execute time-tested strategies while maintaining discipline during trading. In this article, we will discuss the strategies that you, as a beginner, can adopt to achieve success in your trading.
What is Scalping?
Scalping strategy involves trading forex pairs quickly in a short time to make a profit from small movements in prices. To profit from small movements in prices, forex traders have to use leverage and trade large lots of currency pairs to make a substantial profit. But traders have to be disciplined and cut their losses quickly because one large loss can quickly eliminate all their previous winning trades consisting of small profits.
1- Use support and resistance levels:
You should be able to identify the support and resistance levels on a trading chart as these are the price point levels where forex traders enter and exit their trades. The support level is where the price of a pair stops decreasing i.e market supports the price of the currency pair at the support level. On the contrary, a resistance level is where the price of a currency pair stops increasing as if it hits a ceiling. In other words, the market resists letting the price of a currency pair rise above that level.
Since you will be quickly entering and exiting positions, you should find the support and resistance levels on a one-minute and 5-minute chart. As a beginner, you should focus on the buy-side and not short-sell the currency pair. Try buying a currency pair at the support level and sell when the price reaches the resistance level. You can employ this strategy successfully when the market is moving in a range. Also, you should never forget to put a stop-loss on your order so that you can limit your losses.
2- Stochastic Oscillator:
Stochastic Oscillator is a momentum indicator that you can use to determine trend reversal and overbought and oversold levels. The Stochastic oscillator consists of two lines, %K and %D, that oscillate between 0 and 100. When the lines reach below or near 20, this signifies that the pair is in an oversold condition, whereas if the lines reach above or near the 80-level mark, the pair you are trading is in an overbought state. A cross between the %K and %D lines near the 20 and 80-level indicates a possible trend reversal, presenting good entry and exit points. When the market is in oversold condition and you see the %K and %D lines crossing, it is generally a sign of the onset of a bullish trend and is a good entry point where you can buy the pair.
In the EU/USD currency pair daily chart below, you can see the stochastic oscillator at the bottom of the chart.
Scalping is a high-risk trading strategy, so you should be extra careful when executing the strategy. You should first execute your strategies in a demo account, and once you successfully apply your strategies, you can then enter the forex market and trade confidently.