Forex scalping is one of the hardest and more stressful styles of trading that is not for the faint of heart. Is it a viable way to trade and is it worth all the risk it puts you under? Personally, I don't think so, and let me tell you why.
Forex Scalping
In general, Forex scalping is a strategy that requires a trader to take many high leveraged trades, while holding their position for a short period of time and making small profits with each trade. By using high leverage, the trader will be exposed to a very high risk of wiping out their account. This is why you will hear by some that there are no scalping strategies that are profitable in the long run, and by scalping, you will eventually lose all that you have.
Trying to Build a Scalping Strategy
I have a small real trading account that I like to experiment on from time to time. I try out different strategies and styles, from discretionary to mechanical, and in the past few days I was scalping the Forex market, and man was I under tremendous stress!
Being a trader for so many years, I came across many scalping strategies, but I have never tried one that actually was consistently profitable. I even tried programming many Expert Advisors to scalp but was never successful with that either. On a few occasions I came close, but there were always obstacles like "spreads" and "stop-loss" that stopped me from getting to a fully successful strategy. This doesn't make me think that it's impossible to create a scalping EA, but for me, this task is very tough.
I recently had a talk with a fellow trader about his trading style and he showed me how consistently profitable he was using support and resistance levels, but as I asked more to learn about his strategy, I saw that there are no fixed rules and a lot of what he was doing was about feel and experience. The worst part was that his trading was lacking risk management which was obvious (although not to him) that "luck" was making him consistently profitable for a few months.
Here is where my problem lies. I feel that any strategy should be mechanical with fixed rules so that it can be tested and backtested while giving you a solid plan to go by rather than feel your way through each trade. I have studied price action with support and resistance in the past and whenever I saw a discretionary trader explain a trade, I see many earlier losing trades (based on his rules) on the same chart that he did not take. It seemed to me that if they weren't scamming us, then their trading style must me more of an art that can not be taught to everyone.
With all that said, I came up with an idea that I wanted to test and I figured I had enough screen time to be able to. I wanted to scalp Forex using support and resistance levels on the 15 minute time frame, but there was no way at all that I was able to put my rules in writing. My stop-loss and take profit orders were set differently based on what I felt were the strongest levels, and they were more of a safety net since I closed all trades early. I also didn't take any trade that I had the slightest doubt about. This is how I went by and, to be honest, I can't call these rules "strategy rules". I used my phone app to do all my trading and analyzing since I was not willing to face my computer monitor all day long. I traded for a few days and my results weren't what I had expected.
The Results
All my trades were profitable and this wasn't what I had predicted, but then again, I only traded for three days and this is not enough to say that I have a winning strategy. This experience though was a good one, and I did learn a few things and confirmed some beliefs I've had:
Forex Scalping
In general, Forex scalping is a strategy that requires a trader to take many high leveraged trades, while holding their position for a short period of time and making small profits with each trade. By using high leverage, the trader will be exposed to a very high risk of wiping out their account. This is why you will hear by some that there are no scalping strategies that are profitable in the long run, and by scalping, you will eventually lose all that you have.
Trying to Build a Scalping Strategy
I have a small real trading account that I like to experiment on from time to time. I try out different strategies and styles, from discretionary to mechanical, and in the past few days I was scalping the Forex market, and man was I under tremendous stress!
Being a trader for so many years, I came across many scalping strategies, but I have never tried one that actually was consistently profitable. I even tried programming many Expert Advisors to scalp but was never successful with that either. On a few occasions I came close, but there were always obstacles like "spreads" and "stop-loss" that stopped me from getting to a fully successful strategy. This doesn't make me think that it's impossible to create a scalping EA, but for me, this task is very tough.
I recently had a talk with a fellow trader about his trading style and he showed me how consistently profitable he was using support and resistance levels, but as I asked more to learn about his strategy, I saw that there are no fixed rules and a lot of what he was doing was about feel and experience. The worst part was that his trading was lacking risk management which was obvious (although not to him) that "luck" was making him consistently profitable for a few months.
Here is where my problem lies. I feel that any strategy should be mechanical with fixed rules so that it can be tested and backtested while giving you a solid plan to go by rather than feel your way through each trade. I have studied price action with support and resistance in the past and whenever I saw a discretionary trader explain a trade, I see many earlier losing trades (based on his rules) on the same chart that he did not take. It seemed to me that if they weren't scamming us, then their trading style must me more of an art that can not be taught to everyone.
With all that said, I came up with an idea that I wanted to test and I figured I had enough screen time to be able to. I wanted to scalp Forex using support and resistance levels on the 15 minute time frame, but there was no way at all that I was able to put my rules in writing. My stop-loss and take profit orders were set differently based on what I felt were the strongest levels, and they were more of a safety net since I closed all trades early. I also didn't take any trade that I had the slightest doubt about. This is how I went by and, to be honest, I can't call these rules "strategy rules". I used my phone app to do all my trading and analyzing since I was not willing to face my computer monitor all day long. I traded for a few days and my results weren't what I had expected.
The Results
All my trades were profitable and this wasn't what I had predicted, but then again, I only traded for three days and this is not enough to say that I have a winning strategy. This experience though was a good one, and I did learn a few things and confirmed some beliefs I've had:
- I have studied my trades and was not able to come up with any mechanical rules to go by, therefore, luck might have been a big factor in my winnings.
- If any of these trades went against me, I would have lost all of what I earned.
- Resistance and support levels are nothing more that the opinion of the trader himself since there are so many levels and you have to decide which are relevant.
- The stress during a discretionary scalping trade is not for everyone and certainly not for me.
Even though I didn't lose any trade, I'm not happy with the way I traded and I still believe that luck was on my side. This is not the way to go for me and I can't see my account surviving in the long run. Maybe with mechanical rules, I can at least program an EA to do what I can't. A scalping EA is a goal that I have re-initiated for the future.
Do you use a scalping strategy and is it working for you? Please share your experience.
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