Scalping is a popular day trading strategy that traders seek Take advantage of very short-term market movements.
Speculators usually open scores or until Hundreds of deals in a Given day And take a small profit or loss on each of these trades. In this article, we will look at how scalping works and how to use it well with chart patterns.
How does scalping work?
Scalping It is one of the daily trading strategies that people use in the financial market. It refers to a process where people buy and sell financial assets within a few minutes.
This process can be both Manual and automatic. In automation, many speculators are now using trading bots, also known as Expert advisorsTo find opportunities and execute orders.
The goal of the exploit is You don’t make a lot of money per trade. Instead, they focus on creating a file small amount of money in Profit for each trade multiple times in a day. For example, if your goal is to make $50 profit per trade 10 times a day, that’s about $500.
Scalping is different from other trading strategies such as swing trading and position trading. One way this happens is that Scalpers rarely pay close attention to market fundamentals Such as news and economic data. Instead, investors focus on chart patterns to identify market opportunities.
Another difference is that speculators use very short term charts. In a recent article, we explained how to use traders 1 minute charts to daily trade.
What is price action?
price action term Indicates the general chart pattern of financial origin. It is an analysis process where the trader looks at the appearance of the chart and then makes decisions accordingly.
Price action analysis is a type of technical analysis It does not need to use technical indicators Such as moving averages and the relative strength index (RSI).
price action Useful for all types of traders. Long-term traders use the strategy to identify opportunities to buy or sell short. In fact, some chart patterns such as the cup and handle are only useful for traders with a long-term horizon.
How to use chart patterns in scalping
Using chart patterns in scalping is a relatively simple process. It’s common Determine chart patterns And the and then state trade accordingly. For starters, there are two main types of charts in day trading: reflection and continuation.
Reversal chart patterns are the ones that It indicates that an asset will change direction soon. on the other side, continuation Patterns indicate that A His graph will continue bullish or bearish direction right on time.
These styles can also be divided into two parts. First, it can be divided into candlestick patterns such as Doji, Harami, Shooting Star, Morning Star and others. Secondly, it can be divided into Chart patterns that take time to shape It includes more candles.
Related ” How do you trade using one candlestick?
Therefore, using these patterns in trading is relatively easy. All you have to do is identify the chart pattern on a short-term chart, interpret it, and then place your trades accordingly.
Examples of chart patterns in scalping
Flags
flag patterns Simple continuation patterns It occurs when an asset goes up or down. Occur between these trends and are signs of continuation.
Bullish and bearish flag patterns consist of:column“And the”ScienceWhen that happens, traders assume that the chart pattern will continue moving in the current direction.
The signs simply happen when these trends take a break. Below is a good example of a bullish flag pattern in action.
Doge
A doji is a candlestick pattern that forms when the price of an asset closes when it opens. It features an extension Extremely small body and sHurt the upper and lower shadows.
There are other types of doji patterns, including the graves, long-legged doji, and the dragonfly doji pattern, as shown below.
In the chart below, we see that the Meta Platform chart reversals occurred after the stock formed doji patterns. After selecting a doji, The scalper can execute a bullish or bearish trade Based on the previous chart pattern.
swallowing pattern
Engulfing is a two candlestick chart pattern that occurs when a The downward or upward trend fades away. The style is characterized by candlestick This is it followed by a larger one that covers it.
The second candle completely covers the first. After this happens, the speculator can open a trade in the opposite direction.
A good example of this pattern is shown in the chart below. As you can see, Tesla shares formed a small engulfing pattern, which was followed by an upward breakout.
Double top pattern
The double top pattern is a popular reversal pattern Shapes in all kinds of charts. When it forms, it is usually a sign that the financial The assets will soon be reflected And start moving in the opposite direction. Features a flat top and neckline.
In this case, the trader can open a deal and set the take profit at the neckline. In the chart below, we see that Tesla is forming a double top pattern at $195. Neckline at $190. Therefore, the speculator can open a bearish position and place the take profit at $193.
morning star pattern
The morning star pattern is very similar to the Doji pattern. that it A small pattern occurs at the bottom of the trend.
When that happens, it sends a signal that the price of the asset will have a rollover reflection in the near term. The chart below shows a small morning star pattern which is followed by a small reversal.
Summary
A speculator can engage in many strategies to make his trades profitable. Among them, chart patterns are arguably among the most useful.
We’ve seen the most popular – often the best – but there are other chart patterns that are used in price action analysis. Some of those we didn’t cover here are abandoned children, head and shoulders, shooting and evening star, rectangle, and triangle pattern. What is your preferred approach?
Useful external sources
- Is price action a good strategy for speculative purposes? – Quora