The scalping strategy involves the execution of a large number of trades with small goals. As a rule, such a deal is closed as soon as the price enters the profitable zone. Such a strategy requires following strict rules of money management and risk management, since any unprofitable trade can potentially cover a whole series of profitable ones. Fortunately, everything is easier on Binary Options.
Night scalping is ideal for options trading, as the payout of an option contract does not depend on how far the price has gone. The use of a scalping strategy is obliged to increase the total number of profitable trades and, accordingly, can offer greater profits in comparison with trading large trends .
What strategies and indicators to use, the optimal expiration time, timeframes and instruments – all the secrets in our article.
Another plus of night trading is that there is no need for complex long-term forecasts. As a rule, the market lacks liquidity at night, which causes the price to move within a certain channel. The price movement in the channel is easy to predict and does not require any specific knowledge. All the scalper needs is to determine the short-term potential of the instrument and quickly enter the right direction. This is how the strategy differs from the trend approach, when the trade is not closed as long as there is still potential for even greater growth.
The main advantages of scalping:
- Firstly, the trader spends much less time “in the market”, which means that trading risks are reduced;
- Secondly, small movements are easier to catch, since the instrument needs a significant imbalance of supply and demand to make a large jump , while small movements can be triggered by a huge number of factors;
- Third, from all this, we can conclude that small trading opportunities appear much more often than large ones, which means that there are more chances to take profit. Even during a calm market, there are many opportunities to enter a short trade.
Sometimes scalping is also used in conjunction with basic trend trading. In this case, having a position opened by a signal of a larger timeframe, the scalper catches small movements in the course of a trend formation on a higher period.
Trading times and choice of instruments
The lowest trading activity is observed at night. At this time, the American session is approaching the close and is being replaced by New Zealand and Australia. During times of low volatility and virtually no liquidity, rebound strategies reveal their full potential.
One of the varieties of such strategies is channel trading. Its essence is simple: when the price approaches the upper border of the imaginary channel – we sell, when it approaches the lower border – we buy. The night period is considered the best time for scalping, since the price movement at this time is the most predictable.
Also, keep in mind that the volatility for different pairs is highly time dependent. For example, trading a New Zealander or Australian, you can accidentally run into a big news release and a sharp big movement, not always in our direction. At the same time, it is not at all necessary that there are any prerequisites on the price chart. The fact is that Australian trades take place at night, therefore, the time of release of important financial reports should be deliberately removed from trade if you nevertheless decide to trade Australia.
In order not to expose yourself to additional risk, it is better to choose more neutral currencies. The following pairs are best suited for night scalping:
Types of options
For channel trading, you can use both traditional binary options and their variations. To trade ordinary binary options, you only need to know the direction of the future trade, for example, in which direction the price will move after rebounding from the channel border.
The Channel (Range) option type is also suitable. This option implies that the price will remain within a certain channel until the contract is executed. If the price goes beyond the channel boundary at least for a moment, the transaction will be considered not completed.
Thus, you need to either accurately predict the channel width, or determine the moment when the price will bounce off the channel border and enter the market in the direction of movement. Both work well at night, but you can use different strategies for better results.
Strategies and indicators
Scalpers can make tens and hundreds of transactions per day, depending on the specific trading strategy. For trading, a 15-minute chart is usually used in order to have the most accurate picture of price movement.
- Bollinger Bands indicator
The Bollinger Bands indicator is great for short- term options. The indicator signals are easy to analyze, which allows you to conduct a large number of transactions in a short period of time.
The rules for entering are extremely simple. First, you need to open a 15-minute chart and set an indicator on it. The default parameters can be left unchanged, period 20 and deviation 2 are equally suitable for both high and small timeframes. At the same time, in order to reduce the number of false signals, the deviation size can be increased to three. Signals will come less frequently, but their quality will improve.
The entry rules are pretty trivial. When the price closes beyond the upper border of the channel, buy a Put option. When the price closes below the lower border of the channel, buy a Call option. The expiration time for each trade is 1 hour.
- Parabolic indicator
The Parabolic indicator was invented in the late seventies, and is based on the principle of trend expansion over time. The price rises when it is above the Parabolic points and falls when it is below. When the price starts to fall and reaches the level of the indicator, the signal turns in the opposite direction.
Roughly speaking, when the trend reverses, the Parabolic follows the price like a trailing stop . Thus, touching the points of the parabolic serves as a signal to enter a position. In a trending market, it is common to enter the reversal direction to catch an emerging trend. But, since we are trading at night, we need to act in the opposite direction. That is, we open a trade in the direction opposite to the price reversal.
The logic is simple, as soon as the price breaks out a significant level, a correction immediately follows. We choose the expiration time equal to one hour. As a rule, a strong trend rarely emerges in a weakly liquid market, and players’ strength is quickly depleted. Therefore, after the breakdown of the Parabolic, the price immediately wants to roll back. As you can see from the example, with increasing volatility, the number of false signals immediately increases.
Do not trade when the price is too close to the Parabolic points. In fact, it may be a lull before some important event or news, which may result in the destruction of the night channel.
- Donchian Channel reversal forecasting
The principle of the indicator was proposed by Richard Donchian back in the 70s. The famous Turtle Strategy is based on this indicator . The purpose of the indicator is to determine the maximum and minimum price values for a certain period. The indicator takes into account only the maximum and minimum price values and builds the upper and lower boundaries of the horizontal channel based on them.
The indicator itself is very simple, only one period parameter is used in the calculation. The author of the strategy recommends using a 20-period channel. Although the indicator was originally developed for pre-term trading, as can be judged by the natural period of 20 business days, it also works well on intraday periods.
Breaking the channel border serves as a signal to enter the position. That is, when the price breaks the 20-period high or low, it’s time to enter the position. When the price touches the upper border of the channel, you need to enter a decline, when it touches the lower border, we enter an increase. The expiration time is standard – 1 hour.
The decision to enter a position should be made after the candle closes. In any case, the strategy does not remove the main disadvantage of channel strategies. Therefore, using the right money management is extremely important. Make it a rule not to enter the deal more than 1% of the deposit. Also, the indicator can give a number of false or too late signals. To avoid this, you can use the so-called hybrid system of several indicators with different periods, or use filters.
We do not trade a breakout, however, this indicator can also show the emergence of a new trend. When we see such a signal, we must exit the market and not open new trades until nightfall. The strength of the newly formed trend can be determined using oscillators or any other additional indicator (for example, Stochastic or MACD).
The channel has one interesting feature. When there is a strong directional movement in the market, the channel lines narrow. And the stronger the movements, the narrower the channel becomes. This feature fits well into the basis of the theory of cyclical price behavior, which is subsequently reflected in volatility.
- Chart patterns (channel drawing)
It is not necessary to use an indicator for night trading. In fact, you can arm yourself with your own experience and trade by charting. In fact, building a channel is not that difficult. To begin with, you need to have at least 3 control points, which will be the basis of the future channel. An important rule: do not build a channel based on the highs and lows of a candle, it is best to build levels based on bodies.
The trading principle is similar to any other channel strategy. We trade from the borders of the channel towards the middle line. The expiration time should be chosen approximately equal to the average time that the price spends on covering the distance from one channel border to the opposite one.
Tips for Beginner Scalpers
To avoid potentially losing scalping trades, there are some simple rules to follow.
“Be calmer.” A calm market is much easier to predict. If some time before the start of trading on the market there are sharp movements and high volatility, it is better to wait until the excitement dies down.
Do not trade on Mondays and Fridays . Movement these days can be difficult to predict. On Monday, traders are trying to make up for the potential lost at the weekend, or to correct the result of open positions, as a result of which gaps and gaps in the price flow may occur . On Friday, traders, as a rule, remove positions from the market, or sell a stale instrument, which can also provoke unpredictable movements.
The same applies to trading at the beginning of the month and in its last days. Companies issue quarterly reports and summarize the results of the month, resulting in increased excitement in the market. These rules are not a 100% guarantee of successful trades, but they will help you not to run into a loss and keep everything under maximum control.
Do not trade during news releases. It is best to wait out the release period of important events, and not trade for some time before and after the news. For example, news from the US can affect the movement of all major pairs and, most importantly, it should not come as a surprise to you. Use the economic calendar to keep abreast of events .