Scalping Optimization

Scalping Optimization

What is the best lot size for scalpers?

It is wise to decide on the size of the trading lot and exposed risk in advance. Calculate the worst case scenario (e.g. 10 consecutive losses in a row), and see if your account would survive such a drawdown and you would still be comfortable moving forward. Generally, scalping EAs want you to trade 10:1 leverage relative to account size, meaning that you would trade 0.1 lots (10,000) per 1K account size, risking $1 per pip, but perhaps half that lot size would be more appropriate. Definitely, test different lot size scenarios in a demo account to feel more comfortable about which size to use.

Why are automated scalping optimization systems preferable to manual scalping?

A human scalper must have some super human traits: he must have a savant-like knowledge of the market, lightning fast pattern recognition abilities and fast reflexes, iron discipline and steely courage, and be immune to stress and sleep. Oh yeah, and be possessed of an abnormal level of excellent timing and luck. Quite simply, scalping is very intense and only suitable for the most advanced level of trader. Scalping can be very draining and demand lots of screen time. Accurate timing is vital, and the physical and mental speeds of humans accurately deciphering the markets and entering/exiting trades in seconds can be too much.

Consequently, when most people look at scalping, it is to develop, borrow or buy an automated scalping EA. A scalping EA would have none of the aforementioned disadvantages: it could read, decipher and react to the rapidly changing markets with a sophisticated arsenal of built-in strategies at lightning-fast speeds around the clock, 24/7.

What types of market conditions are most suitable for scalpers?

There are many different market scenarios that scalpers can exploit. The two most obvious market conditions are when the overall market is trending or not:

1. When a larger time frame market is trending, scalpers can pinpoint setups in a shorter time frame that are in the direction of the main trade. For example, scalpers can enter two kinds of orders: one long term order and one short term scalping order in direction of market tendency. The short term scalping order would be picking up orders on rebound points. This method allows traders to work without time limitation, 24 hours, and it is not as dependent on spreads.

2. When the larger time frame market is not trending (channeling, choppy, or locked in a narrow range), scalpers can go to a shorter time frame that can reveal scalping opportunities. For example, scalpers can scalp the inter-session range or channel borders, buying at the bottom and selling at the top, with the idea that the channel with hold together and the moment of breakout is improbable, at least for the short-term.

What is the best time of the day to scalp?

Although Forex is active 24/7, not every hour is suitable for scalping. If scalping takes place on rebound points of the larger trend, then it is perhaps ok to find these opportunities throughout the day. However, most scalping systems work on the counter-trend principle, trading the channel borders or trading off of support and resistance levels, and consequently, it has been found that the quieter Asian session works better for these models.

The Asian session has less large time frame directional movements and thus less likely chance of breakouts through channels and support/resistance areas. Support and resistance levels seem to hold together better. The Asian session has more small time frame, seemingly “non-directional” moves (“mini” trends, counter-trends, and reversals) that can be exploited. Thus, applying a time filter to a strategy that only limits trades to the Asian session is a definite enhancement: though the time filter limits the number of trades in the day, it ensures that the more limited set of trades is much more profitable, which is the bigger advantage.

What types of currencies are most suitable for scalpers?

The currency selected for scalping often works best with the preferred market condition for scalping.
Those scalpers seeking to trade the range prefer the cross currencies like EUR/CHF and EUR/GBP for their greater range-bound tendencies. They have been the most attractive to date because they are the cross currencies with the best spreads. Both have had long periods of ranginess, making them ideal for scalping, particularly during the Asian Session, when these two pairs are quieter. Many brokers have caught on to their attractiveness as scalping currencies during the Asian session and have accordingly increased the spreads on these two pairs during that session. Some brokers have not, particularly the fixed spread brokers and ECN brokers. Other cross currencies selected for scalping are GBP/CHF, GBP/CAD, GBP/AUD, EUR/CAD (also best traded during the Asian session when they are more quiet). The difficulty with these pairs is their higher spreads.

Those scalpers seeking to trade off the dips and micro-trends in the direction of the trend prefer to trade with the currencies with more trendiness, movement, volatility and low spreads, such as the EUR/USD and GBP/USD (and EUR/JPY and GBP/JPY). The EUR/USD is the most popular because of its highest volume and lowest spread. This method is not session dependent.

Why are the spread costs so important for scalping?

With scalping, you need to overcome the spread much more often. Since you are aiming for a small profit of a few pips, you are more likely to find yourself giving back 40% or more due to spread.
Thus, scalpers tend to select their broker on the basis of which one has the tightest spreads.


Learn more about Scalping or other trading styles: Technical vs. Fundamental AnalysisSwing, Position, and Day TradingGrid TradingCarry Trade.