Forex Scalping Strategy
Are you looking for a Forex scalping strategy that works? In this article, you’ll learn what scalping is and how you can build an effective scalping strategy using the confluence method. This uses indicators with support and resistance. Before we go any further let’s first find out more information on scalping.
What Is Scalping?
Scalping is a technique that involves buying and selling of an instrument within a very short period of time. This trading method has gained popularity in recent times and it can be used on time any frame starting from just five minutes. This strategy is effective for currency pairs, gold, commodities, and stocks. However, since it requires high volatility to enter and exit in a very short period that is why the Forex market is considered ideal for scalping.
There are several ways you can scalp the market. You can scalp by visually analyzing the price action and predict the market movement. Or you can use technical indicators and oscillators like the moving average and the stochastic. The technical indicators and oscillators can be traded in isolation or you can combine them for better signals.
You can also simply rely on the Japanese Candlestick Patterns or the Western charting patterns to look at the price action and place the trades. So to wrap up scalping is a trading style that involves a very short time frame mostly ranging between 5 to 30 minutes.
So can there be an effective Forex scalping strategy? As mentioned above there are various ways to scalp the market and in this article, we are going to discuss and learn a Forex scalping strategy that’s based on confluence.
Confluence Forex Scalping Strategy
This Forex scalping strategy is based on three confluences. The first one is by having support or resistance areas from a trend line. The second confluence comes through a moving average. And the third one comes from stochastic oscillators. S
o, you would need 3 confluence conditions to be met before you place the trade. But before we go further let’s first understand more about confluence trading.
What Is Confluence Trading
In simple words, confluence trading is when you combine more than one trading indicators or analysis to improve your winning odds. In our confluence strategy, we are combining two support or resistance areas that are static and dynamic along with the stochastic oscillator.
Remember the static levels are drawn by trend lines. They don’t change while the dynamic support and resistance levels are provided by the moving averages and they change as the market moves.
So why use the confluence method? As you know confluence is a combination of more than one indicator therefore the signal simply becomes more reliable to trade. Finding multiple confirmations may sound complicated but on the chart, it’s not really difficult. You just have to train your eye to spot the areas where multiple conditions meet.
In our strategy, the rationale of using support or resistance areas with the stochastic oscillator is very simple. You know drawing support and resistance areas can be subjective. And in most cases, we only approximate those areas, That’s why we add the stochastic oscillator which will further pinpoint the entries. So all in all having three confluences would improve the odds of a Forex scalping strategy in your favor.
The Three Confirmations
So the first confluence in our Forex scalping strategy is to identify and draw a support or resistance with the help of a trend line. The second confluence condition involves plotting the EMA-300 (Exponential Moving Average); which serves as a dynamic area of support and resistance.
The EMA-300 is preferable because as a dynamic area of support and resistance level, it is constantly changing depending on recent price action. The third component in this scalping strategy is the stochastic oscillator.
The Stochastic oscillator will help to identify the overbought and oversold zones as well as the divergences on the chart. Remember, a divergence occurs when prices form a lower low while the stochastic forms a higher low (indicating a possible buy), Or when prices form a higher high while the oscillator forms a lower high (indicating a possible sell).
Understanding the Forex Scalping Strategy
To understand how effective confluence trading strategy is for scalping let’s take an example from the EUR/USD chart below which is set on 15 minutes interval. An EMA-300 is also plotted with the stochastic oscillator at the bottom of the chart. You can see that the price was falling from 1.1460 and formed multiple support areas around 1.1425.
So using those areas we draw a trend line connecting 3 swing lows and met our first condition of confluence. You can see the EMA is also indicating support at 1.1425.while the trend line support is also the same. At this point, both are giving a buy signal and two confluence conditions are met.
Now a third confirmation is needed from the stochastic oscillators to buy the pair. You can see at the bottom of the chart that the stochastic is already below 30 which indicates the market is oversold and can rebound anytime thus favoring a buy entry. All three confluence conditions are meeting at this time.
Now let’s see what happened next in the below chart after all three confluence conditions met. The price bounced off the support line and started to rise. It went up as high as 1.1460. You could close the position at this point in 35 pips profit. Alternatively, you could also set a trailing stop-loss here because the signal was strong enough to push the price further higher than 1.1460. Hopefully, this example explains the scalping and the confluence trading strategy well. We wish you a successful trading journey.
All you need is one Forex scalping strategy to be successful. As a result, find the one that works for you be it the confluence strategy or a different one. Then you need to take the time to really hone your trading skills. Treat it like you would a profession and become the best at it. And then you’ll be the best trader you can be.