Scalpers and Forex day traders can select from a variety of strategies to trade short term graphs. Normally these strategies will revolve around taking advantage of market momentum or scalping breakouts with the trend. Today we will examine the art of scalping retracements swings using a technical oscillator.
As discussed in our previous scalping lesson, the
NZDUSD remains in an excellent position to look for scalping
opportunities. As of today, the NZDUSD has moved to a fresh monthly low
for May and has declined as much as 310 pips from last week’s high.
Traders looking for retracements will look for pullbacks against the
trend then sell when price momentum returns. Let’s look at an example of
exactly how this is done.
Learn Forex: NZDUSD 2Hour Trend
(Created using FXCM’s Marketscope 2.0 charts)
Now that a trend is found, remember retracement
traders will look for opportunities to sell at the best price possible
as the market makes a lower high counter the primary trend. These points
are called swing highs and are generally created near points of short
term resistance. The key to this style of trading is patience and
waiting for price to resume back in the direction of the trend. To help
in the timing of placing a market entry, traders normally will employ
the use of a technical indicator such as an oscillator.
Oscillators are trading indicators that track price
from a defined center point over a predefined number of periods. Below
we can see CCI (Commodity Channel Index) on a 5minute chart. Retracement
traders will first wait for CCI to reach an overbought level over +100
in a downtrend. This overbought reading indicates that price has made a
relative high for the chart, and traders will now look for opportunities
to sell when price begins to decline again. Normally, a crossover
methodology is used with traders selling the market when CCI dips back
below +100.
Learn Forex: NZDUSD CCI Entries
(Created using FXCM’s Marketscope 2.0 charts)
As you can see retracement swings can be an
effective way for Forex scalpers to approach a strong directional
market. However, it is important that short term trends will often come
to an abrupt conclusion. In the event that price begins to change
direction and create higher highs in a downtrend, stops should be placed
on all positions. Traders scalping retracement swings can identify
great Risk/Reward levels by placing stops above the swing highs
previously used for entries. This way all sell based positions are
exited in the event price attempts to break upwards to higher highs.
---Written by Walker England, Trading Instructor
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