Develop a Scalping Strategy in 3 Steps

Talking Points:

• Scalping strategies can be broken down into three components
• Always consider market direction and the trend
• Plan entries around retracements or breakouts

Many traders want to implement a scalping strategy, but don’t know where to get started. The truth is, you can develop a simple scalping strategy in as little as three steps. Today we will review the three components of a scalping strategy. Let’s get started! 

 

Find The Trend

The first step to scalping is finding the trend. Finding the trend is vital because it helps create our trading bias for a currency pair. For example, if the pair is creating a series of higher highs, traders would only want to look for buying opportunities. This is opposed to a graph that is moving towards lower lows, when sell positions are preferred.

Using the example below, we can see the USDCAD has been trending upwards with the creation of a series of higher highs and higher lows. This means that scalpers should look for opportunities to buy the market. 

 

Learn Forex: USDCAD 30Min Trend

EUR/USD: Let's Talk About FX, Draghi - Credit Suisse

Focus of the day:
"Recent comments from ECB Governing Council members suggest discomfort with the continued rise in the euro. ECB President Draghi was particularly forceful, noting that the strength of the currency was "becoming increasingly relevant in our assessment of price stability" and that the ECB "stands ready to take further decisive action if needed" in the face of downside risks to inflation.
Given last week's unchanged policy decision, market participants may be forgiven for thinking that the lack of such decisive action has been behind the euro's appreciation! But although policy wasn't eased, last week's meeting was important as it established a framework that could justify more easing in the future.
The ECB has just published analysis that allows us to calibrate the likely effect of exchange rate moves on its inflation forecasts. It appears that a 10% rise in the trade-weighted euro would shave over half a percentage point off projected inflation in late 2016. It would only take a further 4% rise in the euro from here to (all else equal) push the ECB's Q4 2016 inflation projection to around 1.5%, a rate that could prompt a policy response.
Assuming a broad-based appreciation, that'd be consistent with EURUSD around 1.44. That may be a sensible level for markets to expect the ECB to back its strong words with action."

Credit Suisse Research Analysts: Christel Aranda-Hassel, Steven Bryc, Mirco Bulega Violante Di Canossa, Neville Hill, and Giovanni Zanni

Morning technical analysis – 4 March 2014

The euro is showing some weakness against the dollar despite trading higher on the day. As you can see on the 4-hour chart below, the pair has made lower highs and lower lows since gapping lower yesterday, which in itself indicates a downtrend. It has also found resistance around 1.3773, a previous level of resistance that the pair had initially broken above before the sell-off began this week. This is also the 50% retracement of the move from Friday’s highs to this morning’s lows. The aggressive sell-off at this level is quite a bearish signal and could prompt a move back towards today lows of 1.3720, with the next potential support below here coming around 1.3708, 61.8% expansion of today’s retracement, followed by 1.3694, previous low and 1.3675, a speculative trend line that dates back to 6 February lows and is awaiting confirmation.




GBPUSD

Sterling is potentially looking more bullish against the dollar this morning despite seeing a significant amount of selling yesterday. The pair retraced back to the top of the flag that it broke above on Thursday, before finding support and edging higher. Ordinarily, this would be seen as confirmation of the break, and would be especially bullish as it broke in the direction of the prevailing trend. The only thing that casts doubt on this is risk aversion being seen in the markets at the moment and the fact that the pair rebounded quite aggressively off the 61.8 fib level on the 4-hour chart. This would typically be viewed as bearish. With all that in mind, I think we still require confirmation of the new, or continuing trend, with the former coming from the pair making new lows below 1.6639 and preferable back inside the flag, and the latter coming from a break above the descending trend line from Friday’s highs and, even better, a break above those highs.




USDJPY

The dollar is looking a little more bullish against the yen today, but this may just be a little reprieve following yesterday’s flight for safety which saw traders favour the yen over the greenback. The big gap lower yesterday resulted in a break below the ascending trend line which could prompt an initial move towards last month’s lows of 100.75. We could get some indication today of whether that will be the case from where the pair closes. A daily close back above the trend line, and even better above the mid point of Friday’s candle, would come across much more bullish. On the other hand, a daily close below the trend line could be seen as confirmation of the break and spark the next push lower. The latter looks more likely at the moment, with the pair having failed to break above the descending trend line dating back to 26 February on the 4-hour chart, or close above the 38.2 fib level on the same chart.