I'm a new trader and curious about how the profitable scalpers here on ForexFactory determine the best instruments / currency pairs for scalping.
I want to share some thoughts I've had:
Scalpers are interested in the spread of an instrument, since it can really make or break a trade.
E.g. if your setup finds a trade on the 1M/5M charts and your SL is 6 pips, your R/R target is 1:1 --- if the spread is 2 pips, that's 2 out of 6 => already 33% of your profit (6 pips) is eaten away by the spread (2 pips).
High volatility within a short amount of time is fundamentally good for scalpers. Because, say, even if the spread is 2 pips, if your setup finds a trading opportunity on the 1M/5M charts and the SL is 16 pips, and the R/R target you go for is 1:1 --- if the spread is 2 pips, that's 2 out of 16 => only 12.5% of the profit (16 pips) is eaten away by the spread (2 pips).
3. Measuring volatility
I've searched through Google and a few threads on ForexFactory and found these 3 websites + 1 Indicator + 1 US Dollar Index method which can help getting an idea for high volatility instruments:
- Mataf.net: https://www.mataf.net/en/forex/tools/volatility
- Investing.com Volatility Calculator: https://www.investing.com/tools/fore...ity-calculator
- MyFXBook Volatility Filter: https://www.myfxbook.com/en/forex-market/volatility
- Hanover's "Display Info All Pairs" indicator:
by default displays
- an ADR average of 30 days
- current spread
- the percentage value of [current spread]/ADR(30days)
- US Dollar Index method: plot US Dollar Index and all instruments/currencies you want to trade on the same chart. Then trade those instruments with high positive and negative USD Index correlations WHICH at the same time also exaggerate the moves of the US Dollar Index.
6. My conclusion
So basically I could just trade the pairs with a low spread / high volatility ratio. The end.
==> But I would like to know what the profitable scalpers here on FF think.
- Am I missing anything? Is ATR better? Should I use ADR on a lower TF (eg. 4H) to determine pairs with a high 4H range? Or go even lower and use ADR (or ATR) on the 1H timeframe?
- How do YOU determine the best instruments for scalping?