Scalping for Forex V1.2

8/6/2019 Scalping for Forex V1.2

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Foreword

Welcome to the Scalping For Forex ebook. The purpose of this ebook is to provide allprospective traders with the information needed in order to start profitably in thetrading world. When planning and writing the content we hoped it would facilitate the

transformation from complete novice to profitable trader for the beginner whileallowing already experienced traders to add another string to their trading bow. Theexciting thing about a scalping strategy is that it can be used as a stand-alone systemor it can be used in tandem with other medium and long-term methods. In order toachieve our goals of educating both the novice and the experienced, the ebook musttake the following structure:

An introduction to foreign exchange for those who have no prior experience inthe field of trading.

Software and chart set up simple enough for PC users of all abilities tounderstand.

To outline the trading strategy with clear and concise explanations anddiagrams so every reader knows exactly what they are looking for.

We have also thrown in a little Bonus Material including where you can find free

charting software and news feeds that will save you literally $100s every month! Ifonly we had been given this information as we embarked on our trading journey, itwould have saved us literally thousands!

1For continued support please see http://www.passion-trading.com/


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Contents

Chapter 1: What is Forex? 3List of Useful Terminology 4

Chapter 2: Your Free Charting Package 6Download and Installation Step-By-Step Guide 7Setting Up Your Charts 8Attaching Your Indicators 11

Chapter 3: Implementing the Strategy 15

Chapter 4: Example Trades 17

Chapter 5: Final Thoughts 23



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Chapter 1: What is Forex?

Forex, Foreign Exchange or FX as it is known is the Worlds currency market. Onecountrys currency is exchanged for that of another 24-hours-a-day on an interbankmarket. Since currencies are traded 24-hours-a-day there is no central exchange likeyou will find with the Worlds major stock markets. Proceedings begin in thefinancial centres of the Far East after the weekend and close in the US on a Fridayevening.It is the Planets oldest financial market and on average $2 Trillion exchanges handsevery day. This volume makes the US and UK stock markets look minuscule bycomparison.The fact that the Forex market is so large is a significant one for us for the followingreasons:

All of this money changing hands creates massive liquidity (the degree towhich a currency can be bought or sold without affecting its price). Thereforeas your account grows you have no worries about ever moving the market orhaving an order only partially filled. In effect you can remain completelyanonymous within the market place.

The fact that the market is so large is partly due to the fact that big banks (bothcommercial and federal) are active participants. By following their money wecan eliminate almost all risks from our trading and that is what the strategyoutlined later aims to do.

Currencies are traded in pairs such as EURUSD, GBPUSD and USDJPY. We will befollowing the most actively traded pair the Euro/ US Dollar, or EURUSD for short.This is the currency pair that boasts the most big bank participation, which gives usmore opportunity for safe trades.



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List of Useful Terminology

Ask (Offer):The Ask side of the quote is the price you will have to pay for thecurrency if you wish to buy it. The Ask can also be known as the Offer. The Ask willalways be higher than the Bid.

Bid:The opposite of Ask. It is the price at which you can sell a particular currency.The Bid price will always be lower than the Ask. The difference between the two willdepend on the spread set by your broker.

Bollinger Bands:Consists ofthe midline, a Simple Moving Average (SMA) and twobands of standard deviation plotted from it. Standard deviation is a measure of

volatility and because of this the Bollinger Bands will adjust themselves depending onmarket conditions. As volatility increases the bands widen and vice versa whenvolatility decreases. Many technical traders use the tightening of the bands as anindication that volatility is about to increase significantly.

Candlestick:A price chart that displays the high, low, open and close for a currencyover a specified time period.

Exponential Moving Average (EMA):Calculated by adding the closing price of acurrency over a set time period and then dividing it by the total number of time

periods with more weight given to the latest data. This means that the EMA reactsquickly to recent price changes.

Indicator:In the World of technical analysis, an indicator is a mathematical equationthat takes visual form on a chart. It is used to predict future price movements.Bollinger Bands, EMA, RSI and MACD are all examples of indicators.

(To go) Long:To go Long is to open a trade by buying a particular currency at thecurrent ask (offer) price.



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Lot:The standard amount of any currency making up a transaction. In Forex you cantrade Micro ($1 000), Mini ($10 000) or Standard ($100 000) lots of base currency.The number of lots and the capital you are required to have in your trading account tohold these lot sizes depends on the margin provided by your broker.

MACD:Moving Average Convergence Divergence shows the relationship betweentwo moving averages of price. This system uses a histogram to identify thisrelationship. When the histogram is above the zero line the short-term MA is abovelong-term and indicates the current trend in price is up. The opposite is true if thehistogram has a negative value (below the zero line).

Margin:The deposit required to open or maintain a position. Many brokers will offeryou 1:100 which means that you can control a standard lot ($100 000) with $1 000.

Pip:The smallest price increment a currency can make. For example of price movesfrom 1.2400 to 1.2450 it has moved 50 pips. If price then moves from 1.2450 to

1.2437 it has moved 13 pips.

Quote:A quote displays the current bid and ask price of a particular currency pair.An example of this would be:

RSI:The relative Strength Index compares the magnitude of recent gains to recentlosses in an attempt to determine market conditions. This strategy uses the 50 level(mid point) of the RSI scale to determine the current market direction.

Short (To go):To go Short is to open a position by selling a particular currency at thecurrent bid price.

Spread:The difference between the bid and ask price of a currency pair. Whentrading with a commission free broker the spread is how they make their money. It isbasically a small premium on every trade you make.



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Chapter 2: Your Free Charting Package

Brokers will provide you with free charting as part of their trading platform. Howeverfew are as reliable as charting only packages such as eSignal and Tradestation. Thereasons for this are as follows:

Reliable data feeds (servers) Wide selection of technical indicators The ability to have many charts open at any one time Highly customisable charts Live streaming data Paper (practice) trading facilities

These attributes are all highly desirable, if not vital to your ability to trade effectively.The problem is that the cost of running eSignal or Tradestation could run into $100severy month. As promised there is a solution to this problem and we will show youhow to reap its benefits.The name of the software we will use to overcome this cost issue is MetaTrader orMT4 for short. This software is actually offered by some brokers as their trading/charting platform but not until you have already opened an account with them andthey are assured of your business. Each of these brokers will be using different quoteservers so there will be some price discrepancy between them and the reliability oftheir data feeds will vary greatly.

The quality of your data feed is most important characteristic of your chartingpackage. If the data server goes down or freezes every time a large amount ofvolatility enters the market you will find yourself missing trading opportunities. Somebrokers will even freeze their platforms during times of high volatility to prevent youfrom making money although they will never admit to it.The version of MT4 we will be using is called NEXTT and is provided by Neuimex.The reasons for choosing this version are as follows:

Reliable data stream means the quote server rarely freezes and the price isaccurate as it is linked to the data from four big banks.

Free demo account with practice funds Highly customisable charts and layouts Vast array of free technical indicators, many of which arent available

anywhere else. Free news feed incorporated in the software



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Download and Installation Step-by-Step Guide

Step 1:Open your Internet browser and go to www.neuimex.comStep 2:Click the NEXTT Trading Terminal tab under platforms in the navigationmenu on the left-hand side.

Step 3:Read the information blurb and click to open the user guide. Make sure youread the guide thoroughly as it will enable you to get to grips with the software veryquickly once you have completed the installation. (N.B. Notice that the informationblurb says you can open a free demo account for a limit of 30 days. Once your 30days has expired you can open another free account by selecting Open Accountunder the file menu inside the software). You may wish to bookmark the user guidefor future reference.

Step 4:Click on the Download tab at the top of the user guide page.

Step 5:Click on Registration under the username and password field.

Step 6:You will now be presented with the registration page. You must fill in all ofyour personal details taking great care when entering your email address and making anote of your password. Once you have completed all of the mandatory fields andclicked the Send button you will see the confirmation page informing you that anactivation email has been sent to you.

Step 7:Open a new Internet browser page and navigate to your email account. Findthe mail from [email protected]. Most emails will arrive instantly but you may haveto give it an hour or so to allow it chance to get to you. Remember to check your junkemail box. Once you open the email click on the activation link inside the email. TheThank you page will be displayed.

Step 8:Click on the Downloads button in the Downloads box on the right-handside of the Thank You page and enter your new login details.

Step 9:Click on NEXTT (Neuimex Trading Terminal) at the bottom of the list ofpossible downloads. On the next page confirm your selection by clicking on the

Download button. Select Run to install the software.

Step 10:Follow the installation instructions in the Windows installer. Remember tomake a note of the programs directory location, which will look something like this:C:\Program Files\NEXTT 4.

Step 11:Open your NEXTT Terminal by clicking on your desktop short cut or via theStart menu and proceed to the next chapter.

http://www.neuimex.com/mailto:[email protected]:[email protected]://www.neuimex.com/


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Setting up Your Charts

Step 1:When you have NEXTT open for the first time you must complete the Demoregistration form. You can choose a practice account with equity starting from $5 000to $5 000 000.

Step 2:You will now be offered the chance to update your software to the currentversion. Click on start and the software will update itself and restart automatically.

Step 3:Take some time to familiarise yourself with the platform. Make sure you openall of the menu panels and run your mouse over the many different buttons toestablish their names. This is where the user guide you book marked will come inuseful.

Step 4:You will notice that you have a default layout in front of you that lookssomething like this:



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For now close all open charts, market watch and anything else you have open so yourlayout is blank like this:

Step 5:Now we will open our chart and begin to add our indicators. To open a new

chart click on the new chart button , scroll to EURUSD and select it by clickingonce. Your new chart will look like this:



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Step 6:Maximise this chart by clicking on the maximise button at the top right-hand

corner of the chart .

Step 7:Now we will slightly alter the periodicity and format of our chart to make iteasier to use. First, change the time period from the default 1 hour (H1) to 1 minute.

To do this, click the M1 button on the tool bar .

Step 8:Now we must change our charts from a bar chart to candlestick format. Click

on the candlestick icon on the toolbar .

Step 9:The next step is to zoom into the chart slightly so we can see the price moves

in more detail. Do this by clicking on the zoom in button several times . Yourplatform should now look like this:



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Attaching the Indicators

Step 1:Now we must begin to attach our scalping indicators. To find our list of pre

installed indicators we have to click on the navigator icon . You will see awindow appear to the left of the chart. Find indicators and click to expand the groupso it looks like this:



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Step 2:Adding the indicators. For this strategy we will be adding the following:

Bollinger Bands (18, Exponential, close, shift 0, deviation 2)

Moving Average (3 period, close, exponential, shift 0)

MACD Histogram (Default settings)

RSI (14, close, add level @ 50)

Please follow the following example of how to attach an indicator to your chart andapply this method to all of the above indicators.

Example:Adding the MACD Histogram:

1. Find MACD in your list of indicators.2. Left click and hold your mouse on MACD so you can drag the indicator onto

your chart. Once you release the mouse button the following box will appearthat enables you to edit your indicator:



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3. In the parameters box no changes are needed in any fields for this particularindicator. The fields should read: Fast EMA 12, Slow EMA 26, MACD SMA9 and Apply to Close.

4. By clicking on the colours tab you are simply deciding which colour youwould like your indicator to be displayed in. This is entirely up to personal

preference but signal should be set to none as it is not needed.5. Under the levels tab you may add a level at 0 although it is not needed. To do

this you click the Add button and choose your parameters by clicking theappropriate button to open the scroll down box. If you wish to change thevalue of the level simply double click on the value until it is highlighted andinput your alteration.

6. Under the visualizations tab you need to have the All Timeframes and Showin the Data Window boxes checked. Once you have finished makingalterations click ok, your chart should now look like this:



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Step 3:Complete your chart set up by following the instructions in the example abovetaking care to ensure all the attributes match the ones given in Step 2 of this section.Colour choice is still preferential.N.B. If you ever wish to edit an indicator after you have added it you can do so byright clicking the chart window and selecting Indicators List from the menu that

appears. In the Indicator List highlight the indicator you wish to alter and selectEDIT. Once you have completed attaching and editing your indicators close thenavigator window and your platform will look something like this:

Finding your free news feed:To find your news feed, click on the terminalbutton. One the terminal pane has opened at the bottom of your NEXTT window youhave to click on the News tab and hey-presto, free streaming news! Remember that

the markets reaction to news is far more important than the news itself.



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Chapter 3: Implementing the Strategy

You could be forgiven for thinking that this section is the most technical in the wholeebook. On the contrary, actually installing the charting package and attaching theindicators is far more challenging than using them. The whole point of this system isthat it is easy to use. This is especially important for a scalping strategy where youneed to be able to ascertain a correct signal and react in an instant to the opportunity.

Set Up For a Long Trade:

The 3 period EMA must move above the midline of the Bollinger band

The RSI must move above the 50 level

The MACD histogram must move above the zero line

Set Up For a Short Trade:

The EMA must be below the midline of the Bollinger band.

The RSI must be below the 50 line

The MACD histogram must have a negative value (below the zero line)

By definition the purpose of scalping is to extract quick profits from the market.Therefore, on average, our trades will last from 1 to 15 minutes. With that in mindthere are several additional rules we must adhere to. They are:

Always be aware of important economic data releases. These can cause much

market volatility and rapid moves. An excellent way to keep yourself informedis to visit:

http://www.passion-trading.com/Calendarservice.forexcalendar.current.wet.htm They list all major data releases, their perceived importance and you can set

the time zone so all releases are displayed at your local time.

Trade with the trend. Switch your charts to M5 and M15 ( ) periods soyou can get an idea of the overall market trend. For example if the market ismoving higher in the long term keep your eye out for long trades as this willgenerally offer lower risk, highly profitable trades.

http://www.forexfactory.com/index.php?page=calendarhttp://www.forexfactory.com/index.php?page=calendar


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Keep your losses small. With this strategy there is no need for a position tobecome a loss. You must set your risk at 5 pips, including spread. You will

soon discover that your average gain is 7 12 pips.

Give yourself time to become accustomed to this system by paper trading witha demo account. With every new system you endeavour to trade you mustalways get yourself familiar with the way the market moves in conjunctionwith your entry criteria. You should be confident with your ability to trade thesystem and your win/ loss ratio before making the switch to real money.

When to Enter:

As soon as all of your criteria line up you have your entry signal. However, you mustwait for the current 1-minute candlestick to close before executing the order. Pleasesee the example below:



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Chapter 4: Example Trades

Example 1:

This is an excellent example of all criteria lining up at the same time, giving anindication of a momentum-full move. It would have been possible to collect 70+ pipsfrom this trade. However, the purpose of a scalping strategy is to accumulate littleand often which means that there is no need to become greedy and attempt to bankevery single pip on the chart. You will find that your positive win/loss ratio takes careof profit accumulation.



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Example 2:

In this example we can see that the RSI and EMA are already in agreement and it wasjust a case of waiting for the MACD to show us a buy signal. The move itself is muchslower than the previous example but it still works well in our direction before any ofthe indicators signal and end to the move higher.



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Example 3:

Example 3 shows a short trade. Once again the RSI and EMA are already inagreement and we have to wait for the MACDs signal. The MACD is the slowestmoving of our indicators and thus filters out many false signals, known as whipsaws.On the other hand our EMA is the fastest moving of our indicators and can offer agood exit signal.



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Example 4:

The second short example shows how the EMA can be used as an exit signal. Theinitial move in our direction is 5-7 pips of profit. We can exit here or hold as themarket makes a slow crawl back to break even. At this point the EMA never crossesback above the Bollinger mid line, which in turn gives us new indication to hold our

current position or open a new short. As you can see from the chart this signal resultsin a nice profit.



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Example 5:

This is an example of a break-even, or for the purpose of this explanation, a losingtrade. As you can see all of our indicators are agreeing with one another but there is alack of momentum on the downside and the maximum move in our direction is 5 pips.Once again the EMA acts as an excellent exit signal.



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Example 6:

Here is an example of a momentum-full, long move. As you can see the indicators areall in agreement and the move in our favour is almost instant. The extra momentumalmost causes the EMA to kiss the upper band of the Bollinger. When this occurs theflattening of the EMA is an excellent exit signal. It indicates the move and themomentum are over, at least for the time being.



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Chapter 5: Final Thoughts

Trading as a Business:

Despite what you might read elsewhere, becoming a consistently profitable trader isno easy feat. Like every other skill you have acquired throughout your life (andtrading is a skill!) it requires practice and discipline to master. That is why werecommend practicing on a demo account before trading with real money. You shouldalways be trading within your comfort zone because anxiety will lead to mistakes.Mistakes lead to frustration and frustration soon turns into more mistakes. Whew! Wesuggest that you keep a spreadsheet of your paper trading results. This will enable youto monitor your progress in a clear and concise way while allowing you to work outyour win/ loss ratio and your average profit per trade.The target for any trader new to this system is an average of 5 pips profit per trade.

This does not mean that you will profit every single trade you make; it is simply anaverage of total profit/ total number of trades.

Compounding:

Question: How can you possibly hope to turn several short-term trades per day into afull-time business?Answer: Through the power of compounding.Compounding is a powerful principle that enables you to grow your trading capital ata steady but impressive rate.

Example:

Trader A has reached the required standard to make the step from a paper to a realaccount, i.e. he/ she has a +5 pip per trade average. He/ She decides to start with asmall account and trade one mini-lot for every $300 they have in their account. Onemini-lot equates to $1 for every pip gained or lost. On average this trader makes fourtrades per day. Therefore: 4* 5 pips = 20 pips per day or $20. Although this does notsound much, over the course of a week this is equal to 100 pips/ dollars. In only threeweeks Trader A will have doubled the capital in their trading account.With $600 of capital Trader A can now command a position of 2 mini-lots ($2 perpip). Below is a spreadsheet that shows how quickly capital can grow:

WEEK LOTS (mini) PIPS BANK $

300

1 1 100 400

2 1 100 500

3 1 100 600

4 2 100 800

5 2 100 1000

6 3 100 1300

7 4 100 1700

8 5 100 2200

9 7 100 2900

10 9 100 3800

11 12 100 5000

12 16 100 6600

13 22 100 8800

14 29 100 11700

15 39 100 15600



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Choosing a Broker:

We are not affiliated in any way to a Forex Broker. Therefore we have no reason torecommend a specific company and take an affiliate commission payment. The truthis there are many brokers in the commercial world of Spot Forex with many differentunique features. Naturally different features will suit different traders. In short, broker

choice is a highly personal decision. We do however recommend that you do your duediligence and research all of the options available to you. Here is a list of favourablequalities to be on the lookout for:

Spread:Due to the nature of scalping it is beneficial to find a broker who offers lowspread, preferably no more than two pips.

Account Size:Depending on the size of your trading capital you will be looking totrade micro, mini or standard lots. Some brokers will allow you to open positions withall three-lot sizes through one account (depending on your account balance) whileothers will require that you open separate accounts.

Excellent Customer Relations:Lets face it, if you are opening an account withsomeone and entrusting them with your money you want something in return.Customer service response should be quick, accurate and polite.

Reliable Trading Platform:As we mentioned when choosing our charting software,a reliable data feed during all market conditions is a must. Some brokers have beenknown to freeze their platforms during periods of high activity. Whether this is due tohigh demand and server overload or something more sinister only they will know.

Rapid Executions:Order executions must be instant and slippage free. If you findyour broker is holding your orders, giving you multiple re-quotes or adding slippageto your orders then they are not the broker for you.

Non US Readers:Sorry guys but due toUS gambling laws this doesnt apply to you.There are several UK based Spread betting firms who offer Foreign Exchangeproducts as part of their service. The upside of spread betting is (according to UKlaw) that it is considered gambling and therefore tax-free!

Disclaimer: Trading forex is a very risky business and it is possible to lose all of your

trading capital and more. You should only ever speculate with money that you canafford to lose and never trade with borrowed money.We cannot guarantee that you will make a profit from trading the method outlined inthis ebook, nor that your transition from a profitable paper trader to a real moneyaccount is a successful one.You alone are responsible for the trades you take and their outcome, whether they areprofitable or not.Due to the highly emotional nature of trading it may not be suitable for everyone andyou should consider this before deciding to continue with your education.

Last but not least, GOOD LUCK!

Scalping for Forex V1.2

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