The scalper trader has
the goal of a quick trade for small but leveraged profits. The
scalper prefers to trade frequently for small moves instead of
working for larger moves. The scalper trader focuses on the goal of taking
profits quickly from the market and trades in a very limited time
frame. Scalpers focus on the most recent price action and on small
time intervals, from 10-minute candles to 1-minute candles. The
trader seeing a high probable trade can decide to put on multiple
lots and then attempt to obtain 5 to 10 pips or more. Parabolic
patterns are excellent conditions for a scalp. After a parabolic move
up, the probability of a fading of the sentiment is great. The
scalper has to minimize the risk of a whipsaw.
Their actions are mostly
centered around the overlapping sessions of the major regions,
typically during the Asia close/Europe open, Europe close/U.S. open.
Scalpers trade during these hours mainly because these are the
busiest hours in the forex market on any given day. This business
tends to generate more volume,
which in turn presents more trading opportunities. As they need to react to
market movements quickly, scalping is most suitable for traders who
can devote their undivided attention and focus on the charts for a
couple of hours at a time. In addition, scalpers need the ability to
think on their feet and switch the direction of their trades fast if the situation calls for
it.
Due to the numerous times
in which scalpers enter and exit the markets, there are three simple
rules in their toolbox:
1. Spreads. The spread on
currency pairs is a signifi cant factor in the scalper ’s strategy.
Scalpers tend to stay away from currency pairs with large spreads and
focus only on the major pairs, such as EUR/USD, GBP/USD, and
USD/JPY. They do this because the spread on the majors is normally
the tightest, and the majors have the highest liquidity.
2. News. Scalpers tend to
avoid trading during major news announce- ments. This is because
major news can evoke different emotions in the markets and cause wild
swings in currency pairs. The unwelcome volatility during such news
announcements can be the difference between a winning trade and a
losing one.
3. Leverage. Scalpers
tend to use high leverage because they are in and out of the market
repeatedly with only a small profi t. The high leverage amplifies
their returns signifi cantly.
Due to the fast-paced
nature of scalping, it is not uncommon for traders to employ
automated trading systems to execute trades on their behalf.
Scalping offers these
top three advantages:
1. Risk exposure. Due to
the nature of scalping, traders stay in the market for brief periods
each time. This reduces their risk of getting stopped out by any
unforeseen adverse events.
2. Easier bites. Markets
can ’t make big moves without fi rst making small ones. As
commonsensical as that sounds, it is also why scalpers love small
moves—they happen more frequently, so scalpers’ chances of
winning are bumped up.
3. Frequency. For markets
to achieve signifi cant up or down moves, a major change in
expectations is required. Such changes normally are caused by
primers, such as a major news release. The good news for scalpers is
that even in the absence of news, profi ts can still be made.
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| Scalper Trader |
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