A Free, Once-a-Day Forex Scalping Strategy To Try Out

 

Have You Ever Tried Scalping in Forex Markets?

First off, if you’re new to the concept of forex scalping, I want to apologize for the horrid term. Whenever my non-trader friends ask me what I teach, I always get a concerned face because of this term. I’m going to take an educated guess and say that it’s likely that this was a term that came into play sometime around the same period when brokerages moved online and high-frequency trading became a common way to make a lot of money in the markets. So, 1980’s, maybe 1990’s? And we all know how culturally sensitive and gentle the social norms were during that time. (I’m being sarcastic, just to clarify) I’m also comfortable with being wrong about this theory, but either way, I’d love to see new slang come into the purview of the English trading lexicon. How about something like, “Swiping,” or “Tinder-Style Trading”? Not much better, huh?

 

Okay, let’s get serious! 

 

Today, you’re going to learn a new swiping/scalping strategy that can be used on the EUR/USD once a day. 

 

What are some of the benefits of using a strategy that only trades once a day?

  • You can keep your day trading session as short as possible
  • You avoid running the risk of breaking rules by spending less time in front of the charts, and therefore, will not be tempted to over trade or make impulsive trading mistakes
  • You can day trade while also keeping a full-time job or going to school or parenting young children or doing whatever activity that brings you joy and fulfillment in life and requires your time
  • It can be helpful for transitioning to day trading from investing or swing trading

 

WANT TO WATCH A STEP-BY-STEP TUTORIAL OF THIS STRATEGY? CHECK OUT THE VIDEO BELOW

WANT A PRINTABLE VERSION OF THESE DIRECTIONS AND A PDF OF A TRADING JOURNAL WITH THESE STRATEGY RULES? ENTER YOUR EMAIL AND WE’LL SEND YOU THIS KIT!


I remember when I was first learning how to trade. While it was exciting to learn about and participate in what I thought would be a “quick” way to make money, for months and months I felt so confused. I didn’t really know what to do or how to find or create a strategy I could trust. There are plenty of strategies available for free on the internet, but a lot of them felt really vague and rarely did anyone also post evidence that it worked in real time. Furthermore, a lot of strategies only work well during certain types of markets or during certain times of the day, and a lot of the strategies I came across were being marketed without clarification as to when to use them.

I just wanted someone to tell me exactly what to do! I wasn’t looking for THE ONE STRATEGY that would make me 50%+ return a month, I wanted something that I could sink my teeth into and trust to lead me to a little profit as I worked on weeding out the common beginner trading mistakes, like learning to always take my stop loss or take only five or less trades a day. 

 

Of course, it took some time to learn that if I wanted to find a strategy that I could trust the most, I would have to create one myself. But I didn’t have the experience, knowledge, or confidence to try that approach during my first year of day trading. 

 

Instead, I ended up paying for a strategy online. 

 

While it’s no longer the strategy I use today, using that paid-for strategy helped me to focus on one strategy and use most of my mental energy and time to train myself to stop committing expensive trading mistakes. Part of what made this strategy so useful was:

  • It came with video tutorials
  • The trader showed examples of how the trade worked
  • There was some guidance as to when and how to use it (instead of pretending like it was some catch-all for all markets, all currency pairs, or all times of day)
  • It was easy to backtest

 

I want to offer you something similar, but for free! 

 

I created this strategy with beginner day traders/scalpers in mind. I don’t think it’ll be the only strategy you’ll ever use, but it can be one that you trust enough so that you can focus more of your time and effort on developing good trading discipline. When you gain more experience, you can eventually develop your own trading strategy that works best for your personality, time zone, and personal schedule. Or, if you like it and feel comfortable, just keep using it!

 

So let’s dive into it!

Day trader diving into new easy beginner strategy from free course

First, What is Scalping? How is it Different from Day Trading?

Just a quick word before we get into the nitty-gritty of the strategy. 

Whether you’re new to scalping or you’re a seasoned trader on the hunt for a new scalping method, I want to clarify my own understanding of what scalping is. Because in the Forex markets, scalping can look a lot different from, say, scalping in stock markets or cryptocurrencies. 

Many people may assume scalping to be different from day trading because of the length of time a trade lasts. You probably know that a swing trader will take trades that last for a few days to a few weeks. And that a day trader takes trades that last from as little as a couple of minutes to a few hours, but always closes before the end of the trading day. Some may think that a scalping trade happens over a matter of seconds and mere minutes. 

And yes, sometimes it does!

You’ll see this most of the time with stocks, especially penny stocks.

But I don’t think of scalping as defined by the length of time it takes to trade.

Instead, I think of scalping as a way to define the number of ticks or pips that the trade covers. So if the EUR/USD moves 100 pips in a day, I would say a forex scalping trade is one that takes out less than 20 pips (20%) of that day’s range. Even if that one trade takes half an hour to close, I would still consider it a scalping trade.

You’re going to find with this forex scalping strategy that even though we are going to (usually) capture less than 20 pips on a trade, the entire trade may take more than an hour to complete. 

Summary: Scalping trades are those that seek to capture a small amount of pips/ticks/points. Sometimes this happens within a few seconds, sometimes this can take more than an hour to complete. It all depends on the market you trade.

 

The Disciplined FX Once-a-Day Scalping Strategy: THE OVERVIEW

 

Okay, so now that we know what a forex scalping trade looks like, we can talk about how this scalping strategy works and why it has a favorable probability of performing well for the EUR/USD when the NYC stock market opens.

 

THE PURPOSE OF THIS STRATEGY IS TO LET YOU, YOUNG NINJA,  PRACTICE WITH A WOODEN SWORD INSTEAD OF STEEL

This is not the only forex scalping strategy you’ll ever trade.

This is not a holy grail.

This is not a strategy meant to earn you ginormous amounts of profit in a mere number of days.

checking new strategy works for forex EUR/USD

This is a strategy that takes the stress and pain out of researching and hunting for a profitable strategy and instead ALLOWS YOU TO FOCUS ON DEVELOPING DISCIPLINE when you’re first learning how to trade with rules!

 

All clear? Good!

 

The thinking behind this forex scalping strategy is that when you observe trends on the 5-minute chart, rarely do they keep plowing in the same direction all day long. Once the London markets close for the day, often any trends from the cross-over of the London Close and the NYC Opening lose their steam and start to pull-back or enter a range. Not always, but often enough that we can make a profit of it. That’s when we want to pop in for a quick swipe of a few pips!

 

As someone who has spent almost the entirety of his 12 years of adult life in academia, I don’t want to try to convince you of anything without first showing you some evidence. It’s not ethical, or influential, to do otherwise. 

 

So, here’s a screenshot of a backtest I performed for this strategy at the end of May 2021:

ATR = Average True Range at time of trade entry

R = ratio of pips won or loss to the number of pips risked

Wait, What’s R?

In this instance, R stands for “Ratio” and represents your risk-reward ratio. If your stop loss is 5 pips and your take profit is 10 pips, then you would have a risk-reward ratio of 2. For what you are risking, you are returning twice as much when you win.

I like calculating R when backtesting because it allows me to get an idea of what kind of profit this strategy could return for different levels of risk.

When you combine R with the percentage of your account that you’re risking each trade, you can figure out how much you would make on this strategy (assuming you risk the same amount of money each trade).

For example, if you are trading with a $1,000 account, you may decide to risk 1% of your account for each trade. That means that you would risk $10 per trade.

If your risk-reward ratio (that is, R) is 2, then for every $10 you risk, you would return $20. 

Got it?

Therefore, when we add up all of the R’s from each individual trade during this backtest, we get the sum total of 5. If you had risked 1% of your $1,000 account on each trade, then you would have returned 5% of your account (which is $50).

If you risked 2%, you would have returned 10% of your account ($100)

If you risked 3% you would have returned 15% ($150)

 

But before you start thinking you can go risking 3-5% of your account on a single trade, Look at that third week of the backtest sample. Three losses in a row. If your first week trading resulted in a loss every day, you could have had a drawdown of 15-25% of your account! That’s not good! A rule of thumb is to risk no more than 2.5% of your account per trade.

 

Some Observations from this Backtest:

  1. There were 4 days of no-signal/no-trade
  2. 4 trades resulted in a break-even
  3. 3 out of 11 trades resulted in a loss
  4. 4 out of 11 trades resulted in a win
  5. The third week would have involved sitting through loss after loss
  6. If you don’t include the break-even trades, this strategy had a 57% (rounded) win-rate
  7. If you traded this strategy and went by “feeling”, seeing how you would have only won four times, it probably would have “felt” like you weren’t getting anywhere with this strategy
  8. BUT at the end of these three weeks, you would have been in PROFIT

* NOTE: Backtesting is different from live trading. Sometimes you don’t get the same entry as you would have in a backtest because of the size of the spread between the ASK and BUY. This backtest also fails to take into account slippages and commissions

 

Overall, returning 3-10% a month in Forex is really good!! Actually, given the fact that most people lose when they trade, any kind of profit should be celebrated! 

 

Be careful of what kinds of expectations you place on yourself as a trader and the kinds of returns you think you should be getting from the markets. If you’re new, start with learning how to return any kind of profit. Then, once you’ve developed some discipline, you can try out other strategies that seek to return a higher amount of profit, should you take that route at all.

 

How to Trade the Disciplined FX Once-a-Day Forex Scalping Strategy

Now for the juicy part you’ve been waiting for!

 

Here’s a breakdown of the DFX Once-a-Day Scalping Strategy:

 

THE INDICATORS 

  1. ADX – this is the Average Directional Index. It usually measures the strength of a trend. Often, anything above a 25 is considered a durable trend. Anything below it is considered a weak or non-existent trend. 
  • Settings for the ADX should be 14, WILDERS (this should be the standard setting)
  1. ATR – this stands for the Average True Range. It gives the average size (in pips, from bottom to top) of the chart’s candles over a certain period.
  • Settings for the ATR should be 14 for ADX Smoothing and 14 for DI length (this should be the standard setting)
  1. Exponential Moving Averages – A moving average is the average price of the last length of candles depending on the number/length you select. So if you have a 9 moving average, it would measure the average price of the last 9 candles. However, the exponential moving average is different from a simple moving average in that it gives greater weight to the most recent candles. 

When price moves away from the candles, there’s usually a trend in the direction the candles are moving. If the moving averages are all tied up, crisscrossing each other frequently, then the market is likely oscillating or ranging. 

  • You are going to use 2 different EMA’s
  • The settings for each of the EMA’s = 5, 200 

 

THE RULES FOR ENTRY

  1. This trade can only occur between 930am – 1230pm EST on the EUR/USD (I haven’t tried it with any other pair, but feel free to backtest it and try it in a similar “end-of-one-market-opening-of-another” scenario)
  2. First, note which side of the 200 EMA that the candles are trading 
  3. If the candles are trading ABOVE the 200 EMA, look for LONG/BUY trades ONLY
  4. If the candles are trading BELOW the 200 EMA, look for SHORT/SELL trades ONLY

ENTRY SIGNAL:

  1. You are going to wait for the candles to touch and close ABOVE the 5 EMA if you are LONG/BUY/ABOVE the 200 EMA. Enter a BUY trade (usually via market order) with the opening of the next candlestick
  2. You are going to wait for the candles to touch and close BELOW the 5 EMA if you are SHORT/SELL/BELOW the 200 EMA. Enter a SELL trade (usually via market order) with the opening of the next candlestick

 

STOP LOSS = 1 x ATR (exp: if the current ATR at the entry is 5 pips, then you will put a stop loss limit order 5 pips above/below the entry)

TAKE PROFIT = 3 x ATR (exp: if the current ATR is 7, you will put a take profit order 21 pips away from the entry)

 

MOVING THE STOP LOSS

  1. After the trade moves 1 ATR in a favorable direction (towards your take profit target) move the stop loss to break-even (the price you entered the trade)

 

And that’s it! You take this trade only once!

 

Theoretically, if you know how to set up a moving stop loss, once you’ve entered this trade, you can walk away from the screens and move on with your day. 

 

This trade is meant to help you get started with forex scalping/day trading without having to dive in head-first. 

 

YOUR NEXT STEPS

  1. Set up your charts for this trade.  If you want a walkthrough, be sure to check out the tutorial I made to compliment these instructions
  2. Backtest the trade – Go over at least 100 samples of this trade from the last couple of months to make sure it’s still profitable for this current market. Your results may differ from the backtest report listed above because markets are always changing
  3. Demo Trade or start with a small amount of live cash – before risking your entire account on this trade, try out a few trades with a demo account or by risking a small amount of cash, like $5-$10 per trade
  4. Journal your trades – focus on honing your discipline and following these rules to a T. Note down any extreme emotions you have or if you make any rule-breaking mistakes. Furthermore, stay attentive to any issues that affect the trade, like the spread your brokerage offers or issues with getting your entry filled in time with the opening of the next candle.

 

 

Final Thoughts

I’ll say again, as I’ve said earlier in this article – this is a training wheels strategy not meant to return a whole lot of money, but to get you started with forex scalping and focusing on your own trading discipline. By recognizing that it’s possible to rarely win in a month yet still profit, you are more likely to take your stop losses and follow your trading rules. 

That’s what we’re aiming for – that’s the real WIN in all of this – DISCIPLINE. Once you’ve cultivated discipline, you can trust yourself to try out riskier and more elaborate forex scalping strategies. 

 

If you approach this process in the reverse, that is, get a risky, profitable strategy first and work on discipline once you’re making money, you’re setting yourself up for much loss and failure. 

 

But that’s not going to be you. You’re going to be responsible about this and grow from the experience.

If you ever need more help from me, you know where I can be found.

 

I wish you the best of luck and strength, as always.

 

See you in the markets!

 

Luv,

Andrew

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