In today forex faq, I am going to answer a question from one of our fellow traders here in this community regarding the below question.
Below is the question:
When is the best time to trade scalping?
Is it when the market is quiet? For scalping trades, how many pips should we put as stop loss?
Personally I think that scalping works on all market condition as a scalping trade takes small profits of 20 to 25 pips which is easily achievable in both quiet and volatile market. There are people who argued that their scalping trades get stopped out more easily in a volatile market but at the same time, a volatile market can gives you profits quicker than quiet market.
If your entry is not precise enough, you will still get stopped out in a quiet market. It is just a matter of time when you are going to be stopped out.
The key to forex scalping lies in the precise entry and exit of position and do not really rely on the market conditions. You need to have a trading plan on when exactly you should enter your trade and when exactly you should exit your trade.
My personal advice to those of you who are interested in scalping to incorporate important support and resistance level into your trading strategy. Important resistance and support indicators like the 200 EMA, Fibonacci and Pivot point are very useful tools in scalping.
As for your question on how many pips should you take as the stop loss. I will suggest you to use anywhere between 15 to 20 pips from your precise entry point. Never use a stop loss that is more than your target profit as you will have risk reward ratio of < 1.
If you use a stop loss of 15 pips and target profit of 25 pips, you have a risk reward of 1:1.67 which is pretty okay for a scalping trade. 2 wins with your strategy can withstand 3 consecutive losses. As long as you have a winning percentage of more than 50 percentage, you will be profitable for the month using the scalping strategy.
As a trader, we have to be very calculative in our stop loss and target profits as it will determine whether we are going to be profitable using the strategy. For those of you who have been following my blog here, you will know that I emphasize a lot on the risk reward ratio in trading.
I hope that I have answered your question and for those of you who has something to share, do feel free to give your comments below as it is very precious for other readers in this blog.