In addition to the first of our Forex trading strategies, there is another advanced strategy that can be added to scalping on the currency market. This strategy is known as the martingale strategy and can be combined with a good scalping method for better success.
Here’s how it works. Instead of using tight stop losses on a typical scalping strategy, you won’t have to give up all of your earlier profits every time you get stopped out. Instead, employ some restraint and don’t buy into your trade too heavy in the beginning. Save some firepower for later on if the trade starts to turn bad.
To make this clearer, think of the typical scalping strategy. Traders set their stop-losses to about 10 pips. Then the general rule of profit is only one to one-and-a-half times the spread. Setting your target to such a low level as 2–5 pips is not that profitable. In addition, a ten pip stop loss can kill 3 or 4 good trades. Instead, it can be useful when you find yourself in trouble to increase the amount on your trade. Keep the same direction but enter into the trade again. Here you can give yourself a chance to be wrong and then still get out with a 10-20 pip profit later on.
Let’s look a little closer. If you remember, you may have already determined how to find a long term trend with the first advanced strategy you learned in ‘Scalping With Alignment of Trend.’ Now you are going to add a Martingale strategy and this will move your average position back to a better price each time your intuition proved to be wrong. This advanced strategy makes it more likely that the market will now turn in your favor because you have both a long term trend in your favor and a better average position from the Martingale insurance.
If you were correct to begin with, you won’t need to add to your position with any Martingale strategy. You will simply take an initial profit of 10-20 pips and this can be very nice. Still, when you are wrong, you may also wait as the market makes a typical correction. Then you can increase your position after you find yourself 15-25 pips in the negative. Just “double down” as they say in Vegas and watch how your position improves!
Of course, you always need to keep your humility. Save your last piece of ammunition for further down at 40-50 pips. You may end up with three units at an even better price and it won’t be long before the market turns back in your favor.
Remember, you were really only scalping so don’t get greedy when things turn back in your favor. Get out at a 10-20 pip profit and call it a successful trade! You will also have to remember your humility in the rare cases when a 3-unit position still shows signs of a complete turnaround. Sometimes the market simply turns against the long-term trend and you will have to accept a fairly big loss below 30-40 pips. Make sure and get out after the long-term trend has changed.
Regardless of the pain you experience in the occasional loss, you will find that you are using a strategy that still works over the long term. You will also enjoy steady profits each month and learn to determine short term and long term trends with more accuracy. This is only one of the many Forex trading strategies that can really help you to make scalping a more profitable means of day-trading.