Note how the 5-period line helps to define the uptrend in the early part of the chart, before moving downward, as the underlying rate corrects. As the price rallies once more, the 5-period line starts to pick up before crossing definitively above its slower moving counterpart, in a run-up to a re-test of the prior high.

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In the third ellipse, we can see the orange 5-period line moves lower and crosses below the period line once more, it tests back to the line but then falls back, pre-empting the sell-off, denoted by the adjacent large, white candle. The example above shows the type of interaction that Forex day traders are looking for. A more sophisticated Forex day trading strategy might involve the use of stochastics. Within Forex trading, the term has become associated with a method of tracking and ideally predicting price momentum. If we can identify the points at which a trend runs out of steam, then we can potentially benefit from not only the existing trend but from any countertrend price action as well.

Which is simply a record of the current price performance, that has been rebased and compared to the price performance seen, over 14 prior periods though that figure can be adjusted as required In essence, we end up with an indicator that compares the current price momentum to that seen over the longer term. That comparative performance is then expressed as a value between 0 and Readings above 80 and below 20 are effectively overbought and oversold indicators, respectively. As the gold price sells off, it coincides with a reversal candle or shooting star.

In both cases after the signal, Gold subsequently sells off and down to horizontal support.

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Once again, the gold price sells off thereafter. These are just two out of many Forex Day Trading strategies that you can employ.

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Whichever you choose to adopt, there are some simple but effective guidelines to consider. If you want more of Pepperstone market analyst Darren Sinden's content, you can check out his Daily Market Update key market news in minutes or follow him on Twitter. Rapid growth Against this background then, you won't be surprised to learn that Forex day trading experienced rapid growth in popularity among retail and professional traders. Sensitive to risk As we noted earlier, Forex day trading describes any Forex trading activity that is concluded within a single business day.

Simple strategies using indicators The classic day trading strategy involves the use of indicators, such as a pair of moving averages. Points to consider These are just two out of many Forex Day Trading strategies that you can employ. Choose a strategy that's right for you. That means picking or designing one that you find intuitive to use and easy to read. After all, if you can't interpret what a strategy is or what its indicators are telling you, then it's useless.



Make sure that it generates regular signals regarding both the time frames and instruments you trade. That said, you don't want the signals to come so thick and fast that you can't react to one before the next one turns up.

Don't feel that you need to slavishly stick to just one Forex day trading strategy because they can and should be used in combination. Deploying complementary indicators such as RSI 14 and Moving Averages, for example, would allow you to create a hierarchy of signals.



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The strongest signals being those that are confirmed by both indicators, simultaneously. Unfortunately, just knowing how to do it is not enough. This is because the essence of scalping is taking advantage of fast execution and reasonably tight spreads. If your broker is unable to offer these, then even if you know what are doing and do it right, you will not be able to scalp profitably.

So, the first thing you need is a high-quality broker that executes trades quickly without rejecting them just because the market is moving fast. At the retail level, this is not so very easy to find. There are two types of directional trading, by which I mean traditional long or short trading. You either bet that the movement will continue from a particular level, or that it will reverse.

Round Numbers in Forex

Either way, what are relying on in order to make a profit is the meaningfulness and quality of support or resistance levels. This leads to an important point which is often neglected: major pairs produce more meaningful support and resistance levels, because they are real and not synthetic. So, stay away from trying to scalp crosses, unless both of the crossed currencies have a scalp at exactly the same time against the USD.

Simply put, you are going to get better results by looking for reversals instead of continuations. This will tend to mean trading against the trend, or at least the short-term trend. Do not worry about that. What you need to do are look for levels that are likely to provide a bounce. They key levels to look for can be found as follows:. Highs and lows of previous days, weeks, and months, especially where that end of the candle has a relatively long wick.

Pivot points. The first two are the most important. Where there are several of these levels lined up together, they become even stronger. If the anticipated reversal is in tune with the long-term trend, this is even better, but not essential. The most important thing however is not just to identify the most probable levels at which there are going to be bounces.

What is important and often overlooked is HOW the price gets there. As a rule, the faster the price moves there, and the greater the distance it has to travel to get there, the better. For example, if the Average True Range of the previous twenty days is pips and the price races up to a round number that was also last week's high and is approximately pips from today's low, you have a high probability of a bounce, so you can probably make some short pips off this level.

There is no substitute for executing these trades manually. Of course, if you think 1. However, sometimes the price might stall just half a pip away from that level before turning around, in which case your order would not get filled. For this reason, it helps to scalp with your finger on the trigger manually for both entries and exits. This is why it is so important that you use a good broker. The advantage of scalping is that you only need and expect to get out with a few pips of profit. This is another reason why you need to have your finger on the trigger and your eye on the price.

You will eventually get some huge winners where what began as a scalp can become a major long-term swing high or low. Perhaps the hardest thing about scalping is knowing where to put your stop loss. It might be better to just put an emergency stop loss on and get out manually when you feel the level really start to break in the wrong direction. It is worth remembering that it helps to keep stop losses tight, because where you are looking for bounces, the good trades should bounce pretty tightly.

A Forex scalping strategy is a trading methodology that utilizes the shortest time frames available known as a tick for 1 minute, 3 minute and 5-minute periods. Forex scalpers focus on very small price movements and evade volatility as a primary consideration. They seek trading positions which allow them to perform multiple trades in very short periods of time whilst targeting small profits of 1 to 5 pips each time.

For example, whereas the primary aim of a more traditional strategy may be to undertake three trades per day with plus pip targets each, a scalping Forex strategy would attempt to fully action hundreds of trades within similar time periods whilst targeting only 5 pips each time.

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As you can verify, the former strategy could produce a maximum profit in excess of pips compared to that of the Forex scalping strategy which would be in the region of pips. However, in order to obtain the optimum results for a scalping Forex strategy implies that its users will need to risk more per pip than other strategies so that worthwhile profits can be produced. As such, as this requirement can mean that a scalper will be very highly leveraged by account size upon entering a new trade, then this action may violate the main concepts of most risk and money management strategies.

A Forex scalping strategy will often advise that you should attempt to trade Forex during its quitter periods when trading patterns tend to be more predictable and the levels of volatility are much lower. As such, the time period that is normally chosen for this type of trading is between 5. In order to attain consistent profits, a scalping Forex strategy needs to possess both a high win-to- loss ratio and a well-tested stop-loss strategy.

As such, many scalping proponents utilize very small pip profit-targets together with relatively large stops and a high win-to-loss ratio. However, the utilization of such parameters normally means that the applicable Forex scalping strategy will also possess very poor risk-to-reward ratios.

What is Scalping in Forex?

Is it still worth developing or designing a scalping Forex strategy if it will only eventually possess a very poor risk-to-reward ratio? Yes, as you will see if you consider the following example. Assume that you have selected a profit target of 5 pips and a stop-loss of pips per trade. Consider that your Forex scalping strategy produces a win-to-loss ratio. However, although this sounds impressive you must also realize that you only need two additional losses to completely reverse this result practically wiping out all your profits in the process. Scalping is not suitable for everyone. It is a very challenging albeit potentially rewarding trading style.

It is usually not a good idea for a complete beginner to start with a scalping style.