12.2 Your Trading Strategy and Scalping

Additional Reading about your Trading Strategy and Scalping

Your Trading Strategy and Scalping - Text Version

Every complete trading strategy consists of three core parts.

The first part is the rules that get you into a trade. For example, does the price have to be in a trend? Or do you require a specific candlestick setup or indicator setting? The answers to these and other questions will form what are called yourEntry Rules.

Next, you must decide how much to risk on your trade and where to place your stop-loss.

Lastly, you must decide where to take profits. Successful traders prefer to risk less than their potential gains. In other words, your first profit target should not be less than the size of your stop-loss to give you a positive reward to risk ratio.

You can learn more about stop-loss placement and reward to risk ratios in our Risk Management course.

Now remember, scalping is very short-term. You will be thinking inseconds or minutes at most. Your trading strategy should allow you to process the rules in those short spans of time. Let’s say that in your strategy, you need to look at three indicators over three different timeframes. That might be fine if your lowest timeframe is 15 minutes or hourly, but if you are scalping and using 1-minute charts, you might miss entries while you work out the rules!

How will you know if you can scalp profitably on small timeframes such as 1-minute charts? The only way to find out is to practice, preferably on a demo account first. You might find you need to simplify some of your trading rules, so you can execute seamlessly without too much thought!

In the next lesson we’ll be looking at the issues of spreads and slippage, and how they can affect your trading strategy when you are scalping.