I am going to teach you a very risky strategy that is either going to make you a lot of money or lose you a lot of money. I am the type of person who likes to takes risks. As semi-professional poker players, I was always a super aggressive player who would bully all of the other players. I was what they call loose aggressive. My approach to trading Forex isn't much different. I take a lot of chances, I gamble, but I never lose my shirt. Yes, I lose money sometimes, but I never lose my shirt.
Never Lose Your Shirt
Before I go into the details of momentum scalping, lets first discuss the meaning of, never lose your shirt. In any game of risk, you must use proper money management. As a scalper, we are making tons of trades a day. We are basically making 100's of gambles a day, so if we use too much leverage or two much of our account on each trade, we will go broke. Money management allows you to live to play another day or live to trade another day. Without money management, I would be in the poor house.
The Nuts & Bolts of Momentum Trading
First, lets talk about scalping. What is scalping? It really depends on who you are talking to. An old school pit trader might have a classic definition of scalping, while a modern computer based trader will tell you that scalping is getting in and out of a trade within minutes of executing it. There are even scalpers who are only in a trade for seconds. For this article we are talking about the modern type of scalping.
I call my technique momentum scalping because I only trade when the Forex market is super liquid. I mostly trade when the New York open starts to around 11 AM. I am finished with trading by 12 PM every day. There are times when I trade the London open. To use momentum scalping only trade when the big banks are battling it our and moving currency around the different opens.
Momentum scalping is all about riding the big price moves and jumping in and out of them. From a chart point of view, I always trade the 5 minute chart. I find that this chart gives enough opportunities to make moves without the noise of say a 2 min chart.
We are looking for individual bars to immediately jump in price. This happens when a SINGLE bar goes from a small size to a really large size. We enter a trade right when it's growing in size and we use our discretion as to when to exit a trade. I sometimes make 4 pips and jump out of a trade.
I also use some safe guard such as having a 8 pip stop loss and a 4 pip take profit. We only trade 1% of our account because this is a risky form of trading but it is fun.
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