The most common way to scalp trade is to define a trading strategy based on indicators that measure the extreme range of movement. When the price reaches this extreme range, a play is made in the way of price retraction. The mentality of this strategy can be summed up as this: a currency is either overbought or oversold because of overzealous and greedy traders when the price leaves a particular range or deviation boundary, and the price will more than likely retract before either moving forward or changing direction altogether. There are countless ways to approach this strategy, but the most popular approaches use Bollinger Bands or Envelopes.
Another approach considers momentum of a market and plays the bounce off the simple moving average. If the momentum is positive, a trader will make a series of buys (or long plays) whenever the price touches the simple moving average. (The opposite is done with momentum to the south. This approach is a more active approach than the first, and will likely result in a greater amount of trades. (Of course this depends on the volatility of the market, and the range the trader would be applying in this first strategy.)
A third approach is considering indicators that are off the charts. These include the MACD, Stochastic, RSI, MFI, etc. Again, there are countless indicators on the market, and this technical approach is defined by the condition or conditions met by looking at the behavior of an indicator, and not the price. Some traders who employ this method trust their indicators enough to blind themselves to the price action and simply obey their indicators.
Fundamentals can also be involved in a strategy. Fundamentals differ from technicals, in that fundamentals are considered realities that influence or make up a market. Some traders will watch news feeds and respond with immediate plays based on their estimations for the way the market will receive this news. (Technical traders, by definition, believe this information has already made its way into the price action, and that fundamental traders are simply fooling themselves.)
Pivots consider the range of movement in a market. They can be played by looking at the time of day and referencing recent highs and lows. Many traders find extremes of a market session to clearly define ranges of support and resistance, and these traders play within this “easily” defined range. Often times traders will play the extremes of this range, though some traders will play closer to the center of the range, and play the price action in both directions.
No comments:
Post a Comment