Scalping to me is more like an integrated system in our trading strategy than just being a trading strategy on its own. It is better said to be a sub strategy on its own, because a trader most have a strategy of analyzing the market before applying scalping to it. Scalping is not efficient when the market is very volatile because you would close your trade very short and such a profit you make that does not last up to five minutes is considered as a short trade.
I think, scalping is the best down when there is no impact news coming up and the market is swinging from resistance to support and from support level to resistance level. At this point, you can take advantage of picking a profit when the market is at support and you place a buy and try to pick it when it tries to move to resistant or when the market is at resistance and you place a sell to pick profit when it tries to return to back to resistance level.
Choosing time frame to do your scalping depends on the currency pair that you are trading. If the currency pair is a much volatile pair like the GBP/JPY, then you can choose a higher time frame like M15. So that, you can see a clear action of the Forex market. Because, if you go with a smaller time frame like the M1, you might not really be able to observe the market properly. On the other hand, if the pairs volatility is low like that of the EUR/USD, then you have to choose a smaller time frame like M5 because in this case if you choose a higher time frame, it might be too slow and you might not get any result from the market.
In scalping, it is compulsory that you use a stop loss order because, if the market breaks from the resistance or the support. Then, your scalping goal is defeated and if you still leave such a market you would end up losing heavily. So, when scalping then you have to set your stop loss.
Now, how do you determine your stop loss? Now let us take it like this. If price is at the resistance and you are going to place a sell because the market is actually swinging from resistance to support level, then your stop loss should be set at a point a little above the resistance so that such trade would be closed. If the market suddenly breaks the resistance and you would see that you would not really lose much because, what you have gained before is far more than what you would lose. In addition, once your stop loss is hit at anytime, stop trading the market for that moment because the market has changed its zones of resistance or support level. How do you know that the market is moving from resistance to support and from support to resistance so that you can capitalize on it to scalp? You can know this by first taking the resistance and the support levels of the day. Then study the price movement and see when the price is dancing between support and resistant level and from the support back to the resistance. Make sure that this particular action is repeated twice in like three times before you confirm that price is actually swinging from resistance to support and from support back to resistance.
Tools to use during Scalping: I prefer doing scalping based on purely price action trading strategy. That is an analysis based on the behavior of price in the Forex market without using any kind of trading indicators. If you are to use trading indicators, my suggested indicator is just 2 but must not be my own suggestion. They are the Bollinger bands, which would give you the levels of support and resistance. On the other hand, 2nd choice is moving average indicator, which tells you when price is making reverse.
But, I have not given any trading strategy or system of trading but have just a hint to some of my newbie’s and some my traders who always ask a question on how to go about scalping. It is just to give you a guideline on what to do and what to observe during your scalping. Ideas and Suggestion are welcome!