Recently I switched from day trading to scalping, because I found out that I’m quite better with that technique. I practically stared at the charts 4 hours or more a day past year and I developed some kind of intuition how does market react on smaller time frames.
I use Bollinger Bands (50,2 and 50,3), RSI (9) and ADX (14). So everything could be just fine if I would know where to set stop loss. This is my worst problem and when I lose, I lose A LOT. Because I trade with very high leverage (1:500 or 1:200) and make just 4,5 pips it would be nonsense to put SL 10 pips from profit (bad risk-reward). Does anyone know what should I do? Or just trade without SL? Thanks for your help!
The problem with using a tight SL when scalping is that spread fluctuations will take you out when there’s still plenty of room for the trade to breathe. It’s ultimately what made me shelve scalping in favor of the Daily chart.
I wouldn’t trade without a SL. Imagine you were long JPY when Fukushima happened. You would’ve likely watched yourself be margin called faster than you could’ve reacted.
One thing I tried was setting a “worst case” stop loss and manually closing out of losing trades. It worked for the most part but every once in a while I’d get those huge moves that would run my stop and erase a ton of wins.
You first have to find a broker that is sensible with scalping, so your stops are very tight. In most cases the stops can never be tighter than 6pips + spread 2-3 pips, you are looking at 9 pips. So you can only really scalp on a 15 min chart. On a 1 min chart (i.e. no stop loss) and each trade would really only last 3 mins the only issue there is the spread, because really you are only looking to pick up max 5 pips max on the time frame.
ECN brokers tend to accommodate scalping in their case scalping 100k lots would mean paying a £13 commission on each trade and no spread as this is low (0.2 pips) and tends to be discounted out when you close the trade. So in effect you are really paying 2 pips at the end of the trade. Note that the benefit here is when you open the trade you will be debited £6.50 approx $10 and the rest when you close the trade that way you don’t have to worry about making up the fixed spread in the price move and loosing those valuable scalping pips. In this scenario you can have 3 pip stop or even 2 but beware if your trade reversed and you stopped out at say 3 pips you will have a total bill of 5 pips (including commission) + the spread at close normally 0.2pips = 5.2 pips = $50 if you won say 5 pips you will have $50 - approx $20 commission = $30 so a negative ratio. so you only break even at 7 pips and profit reasonably at 10 pips. Totally unavoidable.
So scalping an hour chart at the least 15 mins may be worth your while than say a minute chart or 5.
Hope this helped. So most retail traders will be loosing on transaction costs if they scalped on lower time frames.
ECN brokers are very few most say they are when they are simply STP or NDD brokers all with fixed spreads and no depth of market view.
Without using stop loss it is really hard to open the positions for me now, but for the people with more funds this strategy may sound good but not for the people with less money.