Forex scalping
Scalping the News Breakouts
Pattern Scalping Strategy
There are different price patterns in the trade markets; scalpers who prefer calmer markets use to exploit formations like triangles and flags, while scalpers who prefer trading the news tend to be active during breakouts.
The new releases play a very important role in any trading day as the most important and common breakouts are caused by them, no matter about their nature. The causes of the volatility can be various as for example an announcement from the government, an unexpected result of a report, or a military attack anywhere in the world. When this happens it can be detected a rapid rise in the volatility, it will last for hours leaving behind swings and fluctuations then exploited by scalpers.
This kind of scalping is similar to the fundamental one and it has nothing to do with the real nature of the news releases, they can interpret the information but they should be ready to respond to an unexpected reaction of the society.
Once that a news is released (about 8 am) the market react with a rapidly increasing behavior that don’t give traders the chance to look back. In the moments after the release, and in the preceding ones, spreads use to widen significantly and the opportunities that scalpers could fine are almost inexistent. Ten minutes after the release, scalpers can find favorable conditions.
The main rule while scalping a news breakout is to avoid the short period around the new releases itself, what means not to trade in the 10 minutes before and after the release. This period is very chaotic and could be only traded with automated tools for scalping; instead, it could be a great opportunity for good traders to interpret the direction where market could go.
We can add a time-stop to a scalping position, which is a kind of stop order once that the traders reach a detailed period of time; they don’t want to be exposed to the market for a long period and to avoid it they can establish a time-stop for example after two minutes. The longer they expose to the market, the higher possibilities of being hit by a sudden risk or movement against our predictions.
Scalping of news breakouts can be very profitable, because all the ideal conditions required by scalpers are present. The swift, large, moves which are present in the brief timeframe during which scalpers are willing to expose themselves to the market, allow the formulation of profitable forex scalping strategies.
Scalping timings
- 7:00-8:00 am
- 8:00-10:00 am
- 3:00-7:00 pm
The Best Currencies
In general we can say that the best currency pairs for scalping are those that are not prone to registered sharp movements in a long period of time, or if they are, such movements are less frequent than in the other currencies’ cases. Considering that, the best group for scalping is the group described as the major pairs, and among them, the EUR/USD pair is the best one ought to its characteristics, as it is the most liquid and least volatile one.
Major pairs
In this group could be included pairs such as the EUR/USD, the GBP/USD, the USD/CHF, and other pairs formed by some of the currencies of the most powerful and stronger countries all over the world. Although the pairs that include the JPY (Japanese Yen) can be also included in this group, they behave differently and could be risky to treat them as the others.
The main characteristic of the majors pairs is liquidity. Their second characteristic is relatively subdued responsiveness to market shocks. Any cause that could evolved into a 100 pip movement in the AUD/JPY pair, will at the same time move the EUR/USD by 30 points in most of the cases, and sometimes even by less points. The major pairs are used all over the world because their common trade; almost all the banks and important institutions can buy, sell and change money in these currencies. They are the giants of the currency market in terms of trade volume, and slowly movement.
The scalpers that would not like to risk so much and get conservative profits could concentrate their operations in the major pairs.
Carry pairs
Carry pairs have the good nature of been liquid, but also the problem of been volatile. This pairs such as the EUR/JPY or USD/JPY are traded all over the world but this operations have a higher risk ought to their volatile behave. The Japanese currency is used by many financial actors to invest and buy in insecure business and assets. As a result, when there is any crisis, change or shock in the market these pairs react in an excessive mode which is even difficult to interpret for the traders, especially in the short time frame where they usually act.
The carry pairs are mainly used for incoming operations and interests. Scalp with them is not always a secure business because due to a unknown causes, the spreads could widen so quickly that even a stop-loss order couldn’t avoid us from an important loss. The sudden widening can also happen with the major pairs but in the carry pairs case is more common, deeper and longer.
It’s not recommend for the beginners to scalp in these currencies, the experienced scalpers could trade them according to the typical tendencies of following strategies and achieve benefits from the breakouts and any kid of sharp movements.
Exotic Currencies
Exotic is a term used in the options market, but we are also going to use it to discuss about the “rare” or uncommon currencies, characterized for been less liquid and less well-known. Almost all of these pairs are unsuitable to scalping. This group includes volatile pairs as the NOK/USD (NOK being the Norwegian Krone), the BRL/USD pair (with the Brazilian Real), and many other formed by lesser known different currencies.
This group is not suitable to scalping because we can often find unpredictable price gaps that make almost impossible to use, in a short period of time, money management strategies.
Tendency lines
The basic tendency line is one of the simplest tools used by operators and also one of the most valuated in any kind of technical operation.
The tendency is just the general direction to where the prices are moving, it can be: upward, down and neutral.
In the forex market is possible to obtain profits with all these tendencies; it is possible because people buy and sell money in different currencies.
Example: To buy United Stated dollar and to sell Japanese yen
Upward tendency
When the tendency is upward the United States dollar has a similar value to the Japanese yen. If the tendency continues you can see how in the graphic the prices get higher and higher
Down tendency
When the tendency is down the dollar reduces its value and you can see in the graphic how the prices are getting lower and lower in the time.
Horizontal or neutral tendency
The prices are moving around a narrow margin (the currencies don’t reduce or increase their value)
In an upward tendency we can find a down tendency and the same in the opposite case, we need to identify in which tendency period we are working and take advantage of the longer tendencies.
Our inversions are mostly made in the stronger tendencies but we can also make profit buying or selling in short periods, it is as simple as buy or sell in the fluctuations that happen into a tendency.
In the graphic we can see and identify the canals of the tendencies that contain the evolution of the prices. In an upward tendency we can find options to buy when the price raises the internal canal’s price and to sell when it touch the upper line.
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- scalping tools (1)
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