Finding a Scalping Strategy that works - a Complete Guide - TradingTools (2024)

Do you need a Strategy to day trade Stocks or Forex, earning small gains that will add up to big profits ?

I’m going to help you, because I’ve been there myself.

If you’ve done some research on the internet, looking for a good scalping strategy for day traders, chances are you’re just paralyzed by the sheer number of videos, websites, tutorials available out there.

Well, here’s the good news. I am going to share with you a Scalping Strategy that actually works, if applied with discipline and consistency.

All right, let’s begin with a few reminders.

Scalping is an extreme form of day trading

Scalping is the art of getting in and out of markets very quickly, taking multiple small gains. It is the fastest way of trading after High Frequency Trading (HFT).

HFT is actually not accessible to retail traders because it requires huge investments in professional equipment and ultra high speed connectivity.

In Scalping, you look for a setup, enter the trade and as soon as it shows a small profit then you exit. As a forex scalper for example, you’re only looking to take a few pips off the market on each trade.

Once you have a setup and a strategy (see below), it is a rinse and repeat mechanism, over and over again.

Since the gain is small on each individual trade, you might be tempted to use quite a high amount of leverage, so my advice is to remain reasonable, volatility bursts could harm you badly.

As a principle, here are the different steps you should follow in your Scalping Technique

1. Look at market conditions
2. Choose the instrument/asset that you are going to scalp
3. Identify the trend: is it bullish, bearish or in a range ?
4. Find the key levels of support and resistance, usually on several timeframes
5. Enter your trades using your own defined Scalping Strategy, Money Management and Trading Plan

Now let’s take a look at the conditions that should be in place.

Six conditions for profitable Forex or Stock Scalping

Now that we know the steps, let’s take a look at the six conditions for Profitable Scalping in the markets:

1. You should trade in periods of strong momentum and volatility. The best trading sessions are London and New York, usually the first three hours, that’s when you have momentum
2. Always use a Stop Loss. Risk management is key, this is how you will control your losses
3. Aim for small and realistic gains, this will be key for your success rate overall
4. Follow a well defined Strategy, and whether it’s breakouts or retracements you must absolutely remain constant in applying it. I’ll tell you about my own Scalping Strategy in a minute
5. Be aware that Scalping could also make you quite a lot of money, but it can also be very dangerous. It’s all about risk management and risk / reward ratios.
6. You will have to be very strong psychologically. Everything in Scalping is fast paced, you need to be able to manage your emotions. In moments of doubt or uncertainty, you might have difficulties entering that key winning trade

Ok, we know the conditions, now let’s take a look at the different indicators used by scalpers.

What are the best scalping indicators?

Here is a list of the most widely used indicators for Scalping:

1. Ichimoku: a fantastic indicator, the one I use
2. Bollinger Bands
3. Heiken Ashi
4. Renko charts
5. RSI
6. Moving Averages
7. MACD
8. Pivot Points: also one of my favorites
9. Support and Resistance
10. Fibonacci

My favorites are definitely Ichimoku and Pivot Points, combining these two on several timeframes can be a very efficient Scalping Strategy, I’m going to explain that a little further down.

But before we get into the Strategy, there are a number of things you want to pay attention to as they could greatly affect your outcomes.

Here’s a checklist of things that will affect your Scalping performance

If you want to Scalp profitably, you will need to check carefully the two following things:

• Low Spread: this is THE number one condition. Spread is the difference between the Bid and Ask price. You will find the lowest spreads on assets such as DAX 30 or EURUSD, during the London and NY sessions, going down as low as 1.0 or even 0.8 pips. Never scalp with forex pairs showing a high spread;
• Quality of execution at your broker. If there is too much slippage in the execution, you results will suffer in the long run. Check this article if you want to know more about slippage.

How can you learn Scalping ? Is Scalping for you ?

Scalping requires a lot of practice. I strongly recommend testing yourself on a demo account, most brokers will provide that.

To be a good Scalper, you need a good resistance to stress, and you should be very disciplined. You should know exactly when to cut your positions and be able to exit without blinking.

Scalping usually involves a lot screen time, so you will also need to be resistant. And remember, never ever scalp when you are tired or not really 100% focused.

The best way to learn Scalping is therefore to follow a few simple steps:

• Follow a professional Scalping course
• Test your skills on a demo account
• Learn Money Management and create a precise Scalping Plan

What timeframes should you use for Scalping ?

Scalping is usually done on the lowest possible timeframes. The most common are:

• Tick or seconds charts
• 1M : 1 minute chart
• 5M : 5 minute chart
• 15M : 15 minute chart

I also occasionally use Heiken Ashi charts, as this will eliminate a lot of the market noise. But you need to understand carefully how they are formed. Some traders will use Renko or Range charts, another interesting option..

Now that we’ve covered the basics of Scalping, let’s get down to my Scalping Strategy.

My profitable Forex Scalping Strategy

The Strategy I’m going to explain here is one I’ve been using repeatedly, showing consistent results, but one thing must be very clear: you MUST follow the rules and not deviate.

You can try it out on a demo account and see for yourself, if you respect all the conditions your R:R should give you a positive outcome.

Ok let’s start.

What indicators does this Strategy use ?

Basically, I use two indicators

• Ichimoku Kinko Hyo
• Pivot points

What timeframes do I use for Scalping ?

I believe it is not advisable to scalp on a single timeframe, as you might be going against the prevailing trend. Which could affect quite significantly your hit rate.

I recommend using three timeframes for this Scalping Strategy:

1. the M15 (15 minute) to define the prevailing trend and the global structure of the market. I recommend that you include the daily pivots on that M15 chart. This timeframe will tell you what are the key levels, main pivots and overall trend;
2. the M5 (5 minute) will be used to assess the potential of that asset and define finer key levels;
3. The M1 (1 minute chart) will be used to define the strategy, entries and exits.

Now let’s look at entries and exits.

Trade entries – long

Here are the conditions needed for a trade entry:

• first, we need a rising trend
• then, the Kumo needs to be bullish (SSA>SSB)
• price needs to break the kijun on a close (we need a clean break)
• the bullish candle should close above the the cloud

Trade entries – short

The conditions for short entries are similar to long trades, only the reverse:

• first, we need a declining trend
• then, the kumo needs to be bearish (SSB>SSA)
• price needs to break the kijun on a close (we need a clean break)
• the bearish candle should close above the the cloud

When should you not enter a Scalping trade ?

Some situations can be considered false signals or bad times to enter a trade. Here is your Scalping checklist of things you should avoid:

• There are market sessions appropriate for scalping and others clearly not advisable. Usually the best results will be the first 3 to 4 hours of the London or New York sessions, that’s when volatility is highest. Try to avoid scalping during lunchtime, 12 to 2 PM or after 6 PM.
• Apart from the market hours, you also have to make sure that no news announcement is due that could affect your trading session. You can check the Forexfactory calendar for any significant upcoming event. And stay out of markets during announcements, they could simply wipe you out because of sharp drops in liquidity
• You also have to watch the Tenkan, the other Ichimoku line. If it has not been broken by price the you don’t have a confirmed trend, it could be just a momentary retrace.
• Do not enter a trade when price is in the cloud, or go counter trend (go long below the cloud or short above the cloud)

Trade Exits

The main condition for your exit will be a break of the kijun, as indicated on the setup graphs above.

Some traders might exit on a break of the Tenkan, but more often than not that will indicate a retrace or brief correction.

Using Pivot Points to refine your Scalping

What are Pivot Points ?

Pivot points are a technical indicator available on most trading platforms that will help you define some key levels.

Usually pivot points come with five lines, a pivot, 2 supports and 2 resistance lines.

The Pivot points come in different variants (Classic, Camarilla, ….) and some traders will use them as a standalone trading method. I use the Classic ones.

If you want to know more about them, check out this page.

They can be used on any timeframe. For our Strategy we will use them as confirmation levels.

Since a lot of traders also use them, price has a tendency to react well around them.

How do I use Pivot Points in this Scalping Strategy ?

First of all, pivot points can serve as a confirmation of the trend.

You should prefer buying when above a pivot, and selling below.

The Pivot Points can help you in setting targets or T/P zones.

For example, when you are waiting to exit a trade, a pivot pint can help you set a target that could enhance the R:R profile of your trade.

By using the Pivot as our exit level, we will be securing a much higher gain.

What Pivot should you use ?

For Scalping, I recommend using the H1 and daily pivot points on the 1 minute timeframe. They will be the most appropriate for finding the right levels.

How should you place the stop loss ?

A stop-loss on all your trades is mandatory.

It shouldn’t be too close, or you’ll get taken out more often than not. If it’s too far, your risk / reward ratio will be affected.

In all my Trading Strategies, the stop loss is usually placed at the level where my scenario becomes invalid.

For example, if I enter long on a Kijun break, then if price closes below the low of that signal candle then I want to exit.

Trailing your stop

I have a simple rule that a lot of traders follow, allowing me to set a good R:R ratio.

When price reaches a profit of 1R (same distance as the one between entry level and S/L). I will move my stop to break-even, and this becomes a risk free trade.

Other Money Management aspects

Among the many parameters you should set before you start scalping, don’t forget the following:

Position size / risk per trade :

Whether you are Scalping stocks, forex, commodities, you need to define ahead of time the size of your positions. The way to do that is the following :

• First, I will define the % of my capital I am willing to risk per trade. For Scalping I recommend 0.5%.
• then, I will calculate the average distance to stop loss in most of my trades (if in Forex, a number of pips, for example 10 pips)
• I will then use a formula to calculate my position size :

$ at risk (% you are ready to lose x capital) / (Pip risk (distance to stop) x Pip value ($ value of 1 pip))

Conclusion

So there we are, that’s my Scalping Strategy for you. It’s easy to understand and implement, and has provided me with loads of successful trades.

But before you try it, I really recommend you to try it out for yourself out on a demo account, that will help you gauge if Scalping is made for you.

Now all you have to do is try it out.

Let me know if you like this Strategy or feel anything could be improved or optimized.

Cheers.

PS: if you’re interested, I also have a Simplified Ichimoku Strategy earning me good results, read about it here.

Further reading

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