The Best Times for Scalping Forex
In scalping, the time period preferred will depend on the technical strategy employed. Some scalpers prefer choppy, directionless markets when utilizing this style, while others prefer to trade strongly directional, highly liquid and volatile markets. This choice is mostly a matter of personal preference, but the two kinds of markets do offer different environments where different strategies will bear greater profit. In this section we will not discuss the methods, but will consider the time periods when a particular approach is likely to bear the best results.
Also let’s add here that a scalper is under no logical obligation to exit a trade if there is enough reason to believe that holding it a while longer may be profitable. The rules that should not be broken are about money and risk management, and there is nothing iron-solid about trading styles. Although in general scalpers should liquidate their positions rapidly in order to maintain consistency, there is no rule which forbids the combining of several trading styles by the same trader. It is common that during the most volatile periods of trading, positions held longer than what is common with scalping can be more beneficial and prudent. If that is the case, there is no reason to avoid doing so just because the trader considers himself a pure scalper, so to speak.
Throughout this text, all times are ET (New York time).
7:00-8:00 am
This is the time period when European markets often experience choppy conditions as traders prepare for the opening of the New York market at 8 am. Since there are option expiries and news releases in this time period, and statistical releases of the European session (which are released around 4 am) have already been absorbed, most traders choose to sit back and reconsider their strategies before North American players enter the forex game. The London and Frankfurt markets are both open at this time, but liquidity lessens as trading desks reduce gear.
Scalpers preferring choppy conditions may find an excellent environment for practicing their skills and refining their talents during this period. Since the market is choppy, strategies that aim to exploit small oscillations in the price to either side can be applied effectively and consistently. It is important to remember, however, that in some cases some anticipated economic event may make the market agitated and stir the water more than what is appreciated by the scalper.
This period is a more volatile version of the last two hours before the North American market close around 7 am. Let’s also note that sometimes the pre-news release volatility in the market can assume a directional character as prices rise or fall significantly but slowly over the one and a half hours preceding the 8:30 release. In spite of the directionality, the slow nature of the price movement can make scalping a favorable option over a buy-and-hold strategy in the period leading to the release. Triangles are common, and it is possible to scalp them by remaining in side the range implied by the triangle.
8:00-10:00 am
During this period, the New York, London, and Frankfurt markets are all open; there are a number of important news releases, and option expiries also take place. As such, this is by far the most liquid and volatile period of the trading day, and requires appropriate scalping strategies for exploitation.
During these two hours micro-trends proliferate, in other words, rapid and sharp directional swings are commonplace as many market events and news releases stir the waters of the forex market repeatedly. In order to exploit these movements effectively, the scalper must possess a reliable technical approach which can be used to exploit rapidly changing conditions. Although we will discuss the technical aspects of trend scalping later, we will mention the importance of building up positions and letting profits run, if possible, in this highly trending market. Of course, scalping involves rapid opening and closing of positions, but unless we let profits run in the sharp moves encountered during this period, the rapid swings that cause us lossess will be able to erase whatever profit we gain with other positions. It is a good idea to be alert, and if caught in the middle of a strong trend which we have guessed correctly, there’s no reason to avoid exploiting it to the full.
If we decide to build up positions in this period, we may move stop-losses gradually to breakeven for our trades so that some of them can be left to run for as long as they can. Since the stop-loss will generate a profit even if it is activated, we can go ahead and continue our scalping while the positions which are safe continue running.
3:00-7:00 pm
This period can itself be divided into two separate phases. Between 3pm and 5pm, many banks in the U.S. are still open, but they are closing gradually as the day progresses. The period between 5 pm and 7 pm is the quietest part of the trading day. Almost all major markets are closed, and while trading is still continuing, activity is subdued significantly. This is the golden sixth of the scalper who prefers calm, and slow markets where small, directionless oscillations can be exploited with great effectiveness. During this one sixth of the trading day, scalping strategies can be employed both manually, and through automation by traders who seek rapid and low risk profits.
The first part between 3-5 pm is more suitable to scalpers who prefer some volatility in the markets in order to realize more sizable profits. On the other hand, since many banks in the U.S. are still open during this period, volatility and risk are somewhat higher than the following period. Between 5-7 pm, on the other hand, almost all major banks in the developed world are closed, and extremely choppy, quiet conditions prevail.
The best way to scalp in these conditions is to use very small and rapid trades, and avoid building up positions. Since directionality in such choppy conditions is unlikely, there is little point in accumulating positions, and tampering with take-profit or stop-loss orders. Quick, multiple trades taken in quick succession without much consideration given to the overall conditions in the market constitute the favored approach of traders during this time period.
