Scalping is a term that comes from the stock exchange environment. It started with the following strategy: traders bought cheap stocks, then spread good news to retail investors, and then sold them again when prices had risen far enough. In the end, retail investors were stupid. It is no wonder that this procedure - at least in this country - is prohibited by law.
Scalping on a day trading basis has little to do with the strategy presented above. Trading is about tapping small profits by either taking a few ticks or pips. Therefore, the trader must either trade a high volume or make many trades in succession.
How does scalping work?
Scalping is not complicated in itself. However, it should be noted the fact that scalping is where HFT traders (high-frequency trading) bustle. In terms of speed, they are way ahead of manual traders. It wouldn't be an advantage to mess with them.
A simple scalping strategy can be based on the following criteria:
- Identification of a trend
- A trend then applies as a trend, if this has been confirmed by two levels
- Entries are the subsequent levels
- Trading is countercyclical
- The goal is a maximum of 5 pips or 5 points
Scalping in practice
The 1-minute chart shows a slight downward trend in EUR / USD with subsequent bottoming out. Every third test of the trend line can be used to get started. Counter-cyclical action is very important as it increases your technical risk-reward ratio.
Scalping with binary options
The difference between CFDs, Forex and binary options is the following: In contrast to CFDs and Forex, binary options have a fixed term. This means that the position is automatically closed after the time has elapsed. A StopLoss or TakeProfit is therefore not necessary. The advantage of this is clear: the risk of suffering a total loss with just one trade is low.
The disadvantage is the low flexibility. Since binary options cannot be sold prematurely, but a lot can happen within the term, the trader has no influence on his position. This requires more meticulous planning in terms of maturities.
In the case of binary options, this makes it extremely important to select levels for trading that are more likely to countermove. This can be achieved by not only identifying trends on a short-term basis, but also analyzing the higher timeframes.
It would also be advantageous to always act in the direction of the trend, as this increases the likelihood of a countermovement.
In summary, you can build a scalping strategy for binary options based on the following points:
- A trend must be identified at least on an hourly basis.
- The Trend must be confirmed by two levels
- The entry takes place with the subsequent confirmation of the trend
- A runtime for the option between 60-120 seconds
Aggressive scalping strategy with Fibonacci
A successful scalping strategy can only work if you act counter-cyclically. This is so important because you have to be positive from the start. Only then can some pips be tapped without risk.
Fibonacci retracement is a good indicator that can be applied to both longer and shorter timeframes. It not only represents important levels that technicians like to use as an entry, but also sets goals. The goals are not necessary in scalping; Here, the goals should be set in advance, for example a maximum of 5 pips.
The following rule applies to Fibonaccis: If the 61.8% level has not been exceeded, it is only a correction in the current trend. On the other hand, it is a trend reversal. The following scalping strategy is based on this:
- All correction levels are traded in the direction of the trend until the 61.8% level has been broken.
- After that 61.8% level is broken, all levels are traded; only this time in the new direction.
- Each level is only traded once
- Holding time for CFDs and Forex maximum 5 pips, for binary options maximum 60 seconds
In relation to the lower chart, this strategy would result in 4 winning and 3 losing trades. Optimization would take place after a while, since the trader is familiar with the market movements.
Brokers must offer short-term options for scalping strategies. These are made available for trading by almost all brokers, including StockPair. The strategies presented above should first be tried out with little effort.