Since scalpers open many positions in the forex market that do not last for more than 5 minutes, they love trading in high volumes. The high-volume lots traded by scalpers allow them to make maximum profits in the little time that they have positions open.
In this article, I am going to show you the two forex trading strategies that successful scalpers use:
- Rapid fire trading
- Piranha Trading
As a scalper your most important tools include a computer, stable internet connection, and lots of coffee to keep you wide awake late into the night.
Who is a Scalper?
A scalper is a type of forex trader who places and closes trades in the forex markets rapidly. Scalpers open hundreds of trades every day but will rarely hold open positions for more than 5 minutes. I like to think of them as guerilla traders.
Scalpers make use of technical indicators and price action charts to outline their forex trading strategies. All their trading strategies are developed on the short timeframe charts (M1 and M5). Plotting their trades on these charts allow them to enter and exit the market numerous time on any given trading day.
Although scalping can be very exciting and adrenaline-filled, the constant monitoring of the markets can lead to mental fatigue, which can make your trading erroneous. To stay on course, you need to know when to take a break. Impose simple rules on yourself and have the self-discipline to follow them through.
You may, for instance, decide that you are going to stop trading for the day after you have traded for 2 hours or after you have made say 20 pips.
Scalper Strategy #1: Rapid Fire Trading
The Rapid Fire strategy works best when the forex market is on a clearly defined trend. It is an action packed strategy that requires you to think on your feet and act as fast.
Rapid Fire Scalper Strategy relies on two main criteria in the forex market:
- Highly liquid currency pairs
- Lowest timeframes available
The strategy is best deployed on the EUR/USD currency pair using the MI chart window. Trading on the M1 time frame is like driving on the fast lane in the interstate. The timeframe presents close to 50 trading opportunities every day.
Rapid Fire Indicators
Because of the high frequency trades witnessed with the rapid fire strategy, scalpers do not have the luxury of using different indicators to analyze the market.
The two indicators used with the strategy are:
- Parabolic SAR- Used with settings of Step02 and Maximum 0.2.
- Simple Moving Average (SMA) – With a Period of 60, and applied to the close.
Both Parabolic SAR and Simple Moving Average are trend indicators, meaning that they work best when the forex market is on a clearly defined trend.
The SMA is used to identify the direction of the trend. We go long when the EUR/USD price climbs above 60, and conversely go short when the EUR/USD price falls below 60.
Parabolic SAR is used to give the exact entry point for both the short and long position. When the price rises above the Parabolic SAR, we go long on the EUR/USD. If the price falls below the Parabolic SAR, we go short on the currency pair.
Scalper Strategy #2: Piranha Strategy
If the forex market is not trending, it is moving in a range. The Piranha Strategy was invented for use when the markets is in range.
Let us dive into marine life. Marine piranhas take small repeated bites on their prey until the prey is totally vanquished. While a single bite might not inflict much harm to a prey, frequent bites are lethal and will usually lead to the death of the prey. The piranha scalping strategies works in a similar way. It gives forex scalpers plenty opportunities to bite small chunks of profit from the forex market.
The piranha strategy works best on the GBP/USD currency pair using the M5 (5-minute) timeframe. Using the strategy, a trading day presents trades with 15-20 trading opportunities.
Indicators to use with Piranha Strategy
The Piranha strategy utilizes one indicator, Bollinger Bands, with Period 12, Shift 0 and the Deviation left at default (2).
The Bollinger Bands are used to identify market entry opportunities. Ideally, you should go long when the price of the GBP/USD touches the lower band and go short when it touches the upper band.