Posts Tagged ‘Scalping’

Trading tactics

Thursday, January 20th, 2011

When analyzing the market a trader should decide whether he wants to trade up or down. Besides, the amount of money invested in the deal should be defined. Finally a trader should choose between buying and selling of a contract.
Importance of determining the precise moment to enter or exit the market makes this part of margin trading the most complicated. The decision on the moment of market entry must be based on the combination of technical factors, money management and order type.
The process of determining the moment for entry or exit is characterized by short term and measured not by weeks and months, but by hours and even minutes. But in all cases the same technical tools are used. Major principles of such analysis are listed below.
1. Tactics based on Price Breaks.
There are three ways of trading with the help of price breaks:
closing the position in advance;
opening a position when the break is in progress;
waiting for a rollback after break.
Each approach has many advantages and disadvantages; therefore sometimes a combined approach is used. When working with several lots, a trader can open one position at each of the three stages. Besides, a trader might open a small position before the estimated break, and then open additional positions at an insignificant price decline during correction that follows the break.
2. Trendline Cross
This signal allows a trader to enter the market or to leave it soon enough, especially when a significant and reliable trendline has been crossed. Of course, other technical factors should be also taken into consideration.
3. Support/Resistance Levels
A break of the support level can be a signal to open a long position. The stop loss signal can be placed below the nearest support level or below the break level directly, which will perform a supporting function in this case.
Price decline to the support level during an uptrend and advance to the resistance level during a downtrend can be used to open new positions and add lots to already opened profitable ones. When setting stop loss signal, it is important to take support/resistance levels into account.
4. Gaps
Price gaps formed on bar charts can also be used to choose the proper moment to open or close positions. The stop loss can be placed below the gap. During downtrend a short position should be opened when prices reach the lower border of the gap. The stop signal must be placed above the gap in this case.

5. Averaging
Averaging is a trading strategy employed when a trader has made a mistake or opened a trade and the price has moved against him/her. In this case a trader performs a new operation of the same type but at a more profitable price. However, averaging has a drawback – no one knows beforehand to what price the market will go against the trader. And the averaging demands to each time invest a double amount of the money invested before.
6. Scalping
Another trading strategy, scalping, is usually employed by trader working with very short terms – one minute or five minutes. If the price goes up the trader buys, in case of the reversal he/she sells. As a rule, the trader performs about 15-20 deals a day.
The drawback of this tactics is that the trader should always watch the market and cannot divert his/her attention from the charts.
We have described the most popular and well-known trading tactics, but the choice is always up to the trader. Maybe you will choose a strategy and switch to a more suitable later on.

Added by Alexandr Petryanin,
InstaForex Clients’ relationship manager