If you are looking for a forex scalping system to trade either the GBPUSD or EURUSD, then try out this simple EURUSD forex scalping strategy.
It comes with a bit of price action built into it as a trade entry signal, specifically, a forex reversal candlestick pattern.
What timeframes are suitable for this scalping system?
It is suggested that you use 5 minute timeframe. You can even try 1 minute timeframe.
Indicator Required: RSI (Relative Strength Index) with settings set at 14 periods.
You want to trade this system when the market is really active so the forex trading sessions that you should be trading in are the London Forex sessions and the New York Forex Session.
Pin Bar Trade Entry Signal
The buy and sell signals are the bullish and bearish signals respectively as you can see on the diagram below:
THE BUYING RULES
- The market must be in a downtrend.
- Check if the RSI line is below the 70 level which indicates an oversold condition.
- K keep watching for a bullish pin bar to form.
- Place a buy-stop pending order 1-2 pips above the high of that bullish pin bar.
- Place stop-loss order 1-2 pips below the bottom of the bullish pin bar.
- For take-profit target options, you can use risk/reward ratio of 1:3 or use a previous swing high point as your take-profit target. Or if there was a big downswing move, use 50% of the distance to calculate your take profit target.
THE SELLING RULES
- The market must be up (in an uptrend)
- Check if the RSI line is above 70 which indicates an oversold condition.
- Once the RSI is above 70 level, keep watching to see if you see a bearish pin bar form.
- Place a sell stop pending order 1-2 pips under the low of that bearish pin bar/candlestick
- Then place your stop loss 1-2 pips above the high of that bearish pin bar / candlestick
- For take profit, if there was a good rally prior, you measure the distance of the rally in pips and take 50 % level of the rally move as your take profit target. Other take profit target options would be to use risk/reward ratio of 1:3 or use a previous swing low point.
Disadvantages of Simple EURUSD Forex Scalping Strategy
- The overbought & oversold indications of the RSI don’t always give the true forex market picture because the RSI (a non-trend following indicator) and the market trend share an inverse relationship.
- So whenever the market exhibits a strong trend, the RSI loses its value and vice versa, which leads to inaccurate overbought or oversold market indications based on strong or weak market trends.
Advantages of Simple EURUSD Forex Scalping Strategy
- The RSI is an oscillator and therefore works best in an oscillating market. In other words, when the price is moving up and down within a channel, the scalping system should give good results.
What is an oscillating Forex market?
- Oscillation is when you’ve just had a big extended move.
- And then the market switches hard against the trend. And then it switches back, but it can’t break loose and continue the trend. And then it switches back again.
- One day the sellers win. The next day, the buyers. It’s a volatile, saw-tooth pattern on the chart. And it marks the end of a trend.
- Markets can oscillate at the top or the bottom. It applies to anything that trades, stocks, bonds, commodities, etc.
Trading EURUSD is one of the most popular forex pairs in the world, that day traders trade on a daily basis.