Forex Price Action Scalping Strategy: Long Setup and Short Setup

There are a variety of forex price action scalping strategies available to traders. However, as scalping involves taking very short term trades multiple times a day, there are more filters required to trade a price action setup.

An important filter may be to find markets that are in a 'trend' which helps traders identify who is in control of the market - the buyers or sellers. Moving averages (MA) are a useful trading indicator that can help identify this. As scalpers are looking for short term moves, faster moving averages - such as the twenty period and fifty period moving average - are commonly used.

Now let's create some rules for a possible forex price action scalping strategy, that combines moving averages for trend and price action for entry and stop loss levels.

LONG SETUP	SHORT SETUP
4 Hour Chart	4 Hour Chart
20 MA above 50 MA	20 MA below 50 MA
Hammer or Bullish Harami pattern	Shooting Star or Bearish Harami pattern
Price action pattern to form in between 20 MA and 50 MA	Price action pattern to form in between 20 MA and 50 MA
Entry: 1 pip above candle high	Entry: 1 pip below candle low
Stop Loss: 1 pip below candle low	Stop Loss: 1 pip above candle high
Target: Previous swing high or pip risk (entry minus stop loss price)	Target: Previous swing or pip risk (entry minus stop loss price)
Cancel the order if not triggered by the start of a new candle	Cancel the order if not triggered by the start of a new candle

This is just an example to get you thinking about how to develop your own trading methodology. Any strategy, will have winning and losing trades so manage your risk sensibly. Now let us look at the strategy in action.

Source: Daily - Data range: from July 14, 2017, to February 28, 2019, accessed on February 28, 2019, at 3:32 pm GMT. - Please note: Past performance is not a reliable indicator of future results.

The above chart of CAD/JPY shows a recent steady move higher. Let's view this on the four-hour chart:

Source: CAD/JPY, 4 hour - Data range: from February 5, 2019, to February 28, 2019, accessed on February 28, 2019, at 3:34 pm GMT. - Please note: Past performance is not a reliable indicator of future results.

The twenty period moving average (blue line) is above the fifty period moving average (red line). This meets part of the rules above for the forex price action scalping strategy. The next steps are to identify price action forex setups that develop in between the moving averages.

Source: CAD/JPY, 4 hour - Data range: from February 5, 2019, to February 28, 2019, accessed on February 28, 2019, at 3:38 pm GMT. - Please note: Past performance is not a reliable indicator of future results.

In the chart above, the gold boxes show hammer and bullish harami patterns that have developed in between the moving averages. The first two price action setups triggered the candle high price levels and then moved lower to the stop loss, resulting in two losing trades. 

However, the next price action setups triggered the candle high price levels and continued to move higher, possibly resulting in winning trades depending on how they were managed.