This article is part of our guide on how to use scalping techniques to trade forex. Most scalpers try to benefit from price patterns in trading the markets. Those who like calmer markets choose to exploit formations like triangles and flags, while those who prefer trading the news tend to be active during breakouts. The most typical and significant breakouts observed on any trading day are those associated with important news releases, regardless of their nature. Volatility maybe caused by an unexpected government announcement, at other times a surprising result from a statistical release, and sometimes a mundane piece of data which the markets choose to interpret in an agitated manner. The characteristic of these events is a rapid rise in volatility: a strong initial movement which then has aftershocks, so to speak, lasting over hours and generating swings and fluctuations which are then exploited by scalpers. Scalping in the aftermath of news releases is different from scalping in stale, range bound conditions with respect to its stop-loss requirement, the average life of a trade, and the necessary risk controls. Although this kind of scalping has some resemblance to fundamental trading, in fact it is a purely technical approach, and has little to do binary the real nature or significance of the news or data releases. This is especially the case when we consider that news releases are revised frequently, and sometimes drastically following the initial release. As soon as the important piece of news was released the market generated a scalping increasing momentum which never gave traders a chance to look back. The maximum value around was also the opening price of the hourly bar, and it was never revisited. It is easy to conjecture scalping soon after the release, and in the period immediately preceding it, spreads had widened significantly, and opportunities for scalping were limited. Yet, right after the news release liquidity came gushing back to the market, as traders hastened to readjust their positions. Favorable conditions for scalping would exist within about ten minutes after the news release. The most important rule while exploiting a news breakout is to stay away from the market during the short period around the news release itself. Unless one is using automated tools for scalping, this brief period is too agitated, and chaotic to allow informed decisions. Worse yet, in the short term the brief but powerful widening of spreads makes technical planning an insurmountable task at times. Instead, a successful scalper will use this brief period to identify the possible direction of the market before entering positions in accordance. The best scalping to ensure against suffering losses in the volatility of this period is using a reasonably tight stop with a somewhat looser take-profit order. It options a good idea to add a time-stop to a scalping position as well. What is a time stop? This is a kind of stop order which will close a position once a certain period of time is reached, regardless of the amount of profit or loss involved although of course, both the potential loss or profit are less than what would be indicated by the stop-loss or take profit orders. Why do we use the time stop? But the market does not need to listen to our expectations, and might as well refuse to hit both the stop-loss and take-profit points for a long of period at least in the terms of the scalper. The longer we expose ourselves to market moves, the greater the risk of a sudden, sharp movement against our expectations. Scalping of news breakouts can be very profitable, because all the ideal conditions required by scalpers are present. The swift, large, moves which occur in the brief timeframe during which scalpers are willing to expose themselves to the market allow the formulation of profitable forex scalping strategies. What we term a technical breakout is the case where a range breaks down without any obvious news catalyst. News are released continuously all over the world during the trading day, and although it is often possible to tie a piece of the price action options to a piece of news being released somewhere in the world, it is not always practical to identify what causes what in the chaotic trading environment with any certainty or exactitude. These seemingly inexplicable, sudden and difficult to predict breakouts will be termed technical breakouts in this text. Scalping this kind of breakout requires a lot more conservatism in comparison to the scalping of the usual news breakout. There is very little clarity as to what is causing what, and a market that is up may soon reverse and go down with little or no warning. To avoid being caught up in the chaos of such conditions, it is a good idea to use even smaller trade sizes, sensible stop-loss orders, In this chart we see the hourly movements of the USDJPY pair confined between and The highlighted area shows the region we would like to trade. Since the established range rests between support and resistance levels which are tested only twice, we would not have had the opportunity to trade the range itself developing on July for profit, using scalping or any options method. On the other hand, we are ready to do some scalping in order to exploit the breakout which occurs at around 7 am on 29th July. The volatile nature of breakout is demonstrated by the green candle next to the small red arrow on the chart where we see observe the closing price of the bar only slightly above the resistance line displayed. Scalping is suitable conditions such as these because scalpers do not need to think long and hard about the ultimate direction of the price. In the timeframe of a one or two hours, five, ten minutes, the price action is more or less random, and it is not very sensible to try to seek logical explanations for it. Scalpers can avoid doing so, and that is their advantage in breakout scenarios, and similar sudden and unpredictable markets. Fortunately, the fractal nature of price charts allows us to trade a 5-minute chart in a way the same way that we trade a 5-month chart; the scalper only needs to apply the general rules of technical trading to the shorter time frame. A scalper trading a range pattern will try to identify the time periods and price patterns where activity is most subdued, and will exploit them for profit. Price charts are similar to fractals. They are self-similar at multiple time periods, with a price range at 30 minutes sometimes accompanied by a trend on a 30 second chart. While trading ranges scalpers must keep both the hourly, and the minutely price events in mind. The hourly chart of the USDCHF pair presents an interesting scenario for scalpers. A large hourly range lasting for a number of days is coupled to fairly strong directional movements requiring some trend following skills for successful exploitation. At this stage, observing the price action in the chart, we must ask ourselves the question: can we determine the severity of short-term volatility by examining charts which show long term activity? The answer is no. Although we can determine the ultimate direction of short term price movements by examining long term charts, volatility on an hourly chart, for example, does not need to be duplicated on a short term chart exactly. The price may move pips in the course of an hour, and the chart would show a large green candlestick, but all that large movement could have happened in the last ten minutes of trading, with the previous fifty minutes presenting choppy, and boring conditions. In other words, the scalper must concentrate on the time period before him, especially if he is aiming minute exploit random price movements that go nowhere as in range tradingin contrast to minute a strong directional trend. In the latter, the perspective provided by long term charts may be helpful, but in range scalping utmost attention must be devoted to the 1-minute, 5-minute graph which is being traded. In the graph above the price is confined betweenand The three red arrows show us the opportunities where we can be confident that the range will hold: when the resistance line is tested for the third time, we will consider this an opportunity for sell-side scalping. Many scalpers prefer to options range patterns as they present quiet, tame conditions where various strategies can be utilizied without minute danger of large losses which would arise in conditions of high volatility. In spite of the brief lifetime, and small profit of individual trades, great gains are realized as profits of several hours are combined at the end of the trading day. In this fifteen minute chart of the USDCHF pair we observe a strong hourly trend only briefly interrupted by the highlighted flags. Although binary formations are not perfect, they are perfect binary continuation patterns, and present quite, subdued periods where the scalper can test his skills. Of the three flags highlighted in this chart, binary first and the third are the tamest, and the easiest to exploit. How does the trader exploit this situation? It is quite simple and easy to scalp the market when there are flags appearing. But flags are very strong continuation patterns, and we must be careful not to get caught in the breakout when the flag pattern dissipates and gives way to the momentum of the main trend. Triangles can be traded in the same manner as well, and any consolidation pattern can be used for scalping within the range established. As we mentioned before, the rules of range trading can be applied, along with the appropriate strategies, while using the necessary risk controls inside the preferred brief time frame of scalpers. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. No information or opinion contained on this site should be taken as a solicitation or offer to buy or sell any currency, equity or other financial instruments or services. Past performance is no indication or scalping of future performance. Please read our legal disclaimer. News Breakouts The most typical and significant breakouts observed on any trading day are those associated with important news releases, regardless of their nature. Technical breakouts What we term a technical breakout is the case where a range breaks down without any obvious news catalyst. Flags Many scalpers prefer to exploit range patterns as they present quiet, tame conditions where various strategies can be utilizied without the danger of large losses which would arise in conditions of high volatility. In spite of the brief lifetime, and small profit of individual trades, great gains are realized as profits of several hours are combined at the end of the trading day In this fifteen minute chart of the USDCHF pair we observe a strong hourly trend minute briefly interrupted by the highlighted flags.
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