Scalping Trading Strategies
When talking about scalping, the strategies are mostly applied to 1-Minute charts of the instruments. Though there might be some strategy examples when higher timeframes may be used to define a trend.
1. Candlestick patterns
Being a trader that has just decided to dig into this trading approach, candlestick patterns are very easy to start with. There are plenty of materials and books that allow getting an understanding of these candlestick combinations and their probability.
Below there are marked one of the most popular patterns called Engulfing. A Long Engulfing is displayed which reflects the situation when a low of the current candlestick is lower than the low of the previous candle and the close of the current candle is higher than the high of the previous candlestick. Vice versa is applicable for Short Engulfing.
Patterns are easy to spot and have a good probability, being also widely used among scalpers. Candlesticks have to be big, i.e. the engulfing has to be strong and clear.
2. News trading
It is a well-known fact that quite often prices react to some news (especially unexpected ones) and hence news trading could be used as a strategy.
At first, a proven and stable news source should be found and one of the most popular news feeds is the Calendar by ForexFactory. It has various filters like the Impact of the news (it is better to choose news with high importance), the currency that it may impact, time, the name of the event, and some more.
Among the planned news that has the highest impact on the market are Non-farm payrolls (NFP), Federal Open Market Committee (FOMC), and ECB press-conferences.
3. Trendline breakouts and pullbacks
Another one strategy that could be used not only in scalping but as well in long term strategies like day trading is pullbacks and breakouts of trendlines. They are drawn as straight lines using the highs or lows of the candlesticks as on the 1-minute USDCHF chart below.
When a trendline is being revisited by price, a trader must monitor the activity during that period. If the price starts to range near the trendline and does not move further, then there is a higher chance that it will bounce off the line so it is a good signal for entry. If the pressure is staying and the price keeps going in the same direction, then there is a higher chance of breakout so the short-term trend might be broken.
4. Scalping using Supertrend Indicator
When scalping, traders have to keep a high concentration on the execution of trades while some supplementary routine can be maintained by automated software. Scalpers may use tools like Supertrend indicator that will allow to get an understanding of the current trend on a certain asset or even give signals for buying and selling.
There is a real toolkit of MetaTrader indicators that might be also used in trading activity to increase the probability of entries and exits using this quality software. It may be really helpful because it gives some additional confirmation that does not require any time-sharing from a trader.
5. Order book scalping
This scalping approach is suitable for the brokers that allow getting access to Depth of Market, also called an order book. It is the list of orders that a trading venue uses to keep a track of buyers and sellers willing to execute orders with desired prices.
Mainly, order books are available on stock exchanges like NYSE and NASDAQ (or MOEX where brokers have MetaTrader 5 with DOM in the list of supported terminals) and also among forex brokers that offer cTrader terminals to the users.
Here is an example of how the Depth of Market could be used. On the chart of the asset, there is an order placed at 162.75 which volume is equal to 8417 units which is definitely bigger than orders on any other price levels. Usually, it is very hard for the price to break such price levels, therefore such order book patterns are treated as good enough to take a bounce from with a tight stop-loss.