Suggested Methods of Forex Scalping

To scalp a market effectively, you must first isolate a specific trading range which is clearly defined in terms of support and resistance or in terms of bid offer. As you know, the bid is the price at which buyers are willing to buy; the offer price is a price at which sellers are willing to sell. In most cases, there is a spread, or difference between the two, sometimes of one tick in size and other times several ticks in size, depending upon the market. In Treasury bonds, the bid offer spread is usually one tick. Therefore, by knowing the bid and the offer, the scalper will attempt to buy at the bid price and sell at the offer price, otherwise known as buying the bid and selling the offer.

Here is a suggested technique for taking advantage of the bid-offer spread. Assume that Treasury bond futures have been trading in a fairly narrow trading range after the initial opening volatility has been digested. The market begins to trade between $103.15 and $103.17, a two-tick range. As long as the market continues to trade in this range (and this could change at virtually and time), you will want to buy at the lower end of the range and sell at the higher end of the range. In order to do this, you will enter specific price orders to buy at $103.15 fill or kill. Within several minutes, you will know whether you have been filled. If you have been filled, you will then enter an opposite order to sell, perhaps at $105.16 or $105.17 which is within the asking price range.

This is the very basic technique of buying at the bid and selling at the offer. As you can see, it is considerably more difficult to do off the floor than it is on the trading floor, since floor traders know immediately whether they have been filled without having to wait for a third party to confirm the price execution. The on-the-floor trader, who must await confirmation of order fill. Depending upon the firm with which you are doing business, the use of fill-or-kill orders may, if used too frequently, alienate brokers as well as floor traders. Therefore, the fill-or-kill order should be used only when absolutely necessary or in cases where the firm you are dealing with has no objections.

Another technique would be to use a price order and to give the market sufficient time to fill your order. In this case, I recommend working with a brokerage firm that will report your fills back to you as quickly as possible. The problem with Scalping away from the pit is not knowing whether you have been filled.