What is Scalping in Forex?
In this article
Do you know what scalping trading in Forex is?
In the forex market, scalping is profiting from small price movements. You frequently enter exit positions to “skim” off modest profits in the forex scalping strategy.
In this guide, we’ll talk about forex scalping and how you can do forex scalping.
What is scalping in forex?
Forex scalping aims to profit from small price movements through short-term trading. Scalping is a forex strategy focusing on small gains, and scalpers typically close their positions after gaining 5 to 20 pips.
Traders who do scalping are called scalpers.
Forex scalpers, like day traders, will never leave a position open overnight. However, because they open and exit trades considerably faster, scalping needs more discipline and attention than day trading.
It is the opposite of position trading, in which you seek to generate significant gains from a small number of long-term positions.
Retail traders widely use the forex scalping strategy. Rather than waiting days, scalpers enter and exit the market in seconds and only trade during the busiest and most liquid market hours.
It means that there is no overnight risk, and you can calculate all gains and losses before the conclusion of the trading day.
However, you should be aware that this is a very active trading style, and if you lack the discipline to sit in front of your computer for a few hours every day, you’ll be better off with a longer-term trading style like swing or position trading.
It’s always better to try your hand at a demo account first, then move to the real account for scalping.
Scalping: Indicators and Signals
How does the forex scalping strategy work?
Forex scalping is trading currency pairs on shorter timeframes like the 15-minute, 5-minute, and 1-minute charts.
Many forex scalpers will concentrate on high-volatility events, such as economic data and breaking news, when huge market changes are nearly certain.
A standard lot in forex is 100,000 units of the base currency, but owing to leverage, scalpers may continue to acquire larger positions and profit from minor market fluctuations.
A pip is worth about $10 on average, so holding a trade for a one-pip move ten times a day would equal $100.
Typically, forex scalpers will have a certain number of pips in mind and will close their trade after the currency pair has moved by that number of pips in either direction.
A scalper, for example, would open a trade on GBP/USD for 30 seconds, hoping to cover a one or two-pip change in the currency pair. On average, this may only earn them $10-$20, but it would be performed several times during the day.
Scalping vs Day Trading: Are they the same?
A common misconception among beginner traders is that day trading and scalping are the same. The solution is rather simple to convey.
Scalping involves opening tens, if not hundreds, of trades every day. On the other hand, day traders are limited to only a few trades daily.
Third, day traders might sometimes depend on notions such as fundamental analysis. This type of analysis is rarely required in scalping.
The best Forex pair for scalping
In addition to trading major currency pairs like EUR/USD, GBP/USD, and AUD/USD, traders should also consider scalping cross-currency pairs like AUD/GBP.
These currencies are the most volatile and have the tightest spreads because they are frequently in and out of the markets. Spreads narrow as the rate moves, which means your trade is in profit in fewer pips.
Traders with more experience may prefer to scalp exotic or minor pairs, which usually have higher volatility than the major currencies but come with high risk of losing.
Another factor to consider is that scalping with majors has a more liquid market, making it simpler to enter and exit markets on time.
Some traders enjoy trading minor currency pairs because they are less liquid, allowing them more opportunities to the scalp at the correct periods. However, this is not something we would advocate.
While scalping GBPUSD can be reasonably simple for inexperienced scalpers, scalping EURUSD or other majors will take significant effort and expertise to become lucrative.
When is the best time to scalp in Forex?
Forex scalping is generally agreed upon by traders as the best time, though this does vary from currency to currency. For example, in the first hour of the London trading session, currency trading based on the GBP tends to be the most profitable.
Although the best time to trade any major currency pair during the New York trading session generally falls during the first few hours, as the USD has the highest trading volume. In scalping, you should monitor charts only during trading hours.
In addition to scalping, some traders like to trade during the early morning hours when the market has the highest volume, though this technique is better for professionals, as the risks could be higher for beginners.
Do you need large capital for forex scalping?
Scalpers don’t need much money to trade the forex markets profitably. You won’t want to risk a huge amount of dollars in every trade if you’re trading a high volume of trades daily.
Also, because trades are closing so quickly, you won’t have to worry about wasting margin on open positions that have been held for hours.
Types of forex scalping strategies
Forex scalping is popular among traders because it can give fast profits. But doing so also requires applying the forex scalping strategies.
There are many types of forex scalping strategies you can apply. While there is no best forex scalping strategy, you can try some of the most common strategies. Let’s go through all of them.
Momentum scalping strategy
It is a trading strategy that seeks to profit from assets that exhibit tremendous momentum within a single day. For example, if EUR/USD is skyrocketing in premarket trading, a scalper can buy it and exit when they earn a modest profit.
Similarly, they can short it and profit if they observe a pair in a strong downtrend.
Trend continuation scalping strategy
It is a trading strategy that recognises and follows an already-established trend until it changes course. If a forex pair is upward, you can initiate a buy position and hope the trend continues.
To find trend continuation, you can look at chart patterns like flags, pennants, and ascending and descending triangles.
Reversals scalping strategy
Finding reversals is another strategy you can use for scalping. You need to find trend reversals and enter the trade.
You can use patterns like head and shoulders and double-tops to predict when a reversal will occur.
Breakout scalping strategy
Trading breakouts are a great strategy for catching large movements. Most forex scalping strategies involve looking for breakouts, entering a trade at the start of the breakout, and then riding the market move until it reverses.
What are the most common forex scalping indicators?
When it comes to forex scalping, what is the best indicator? Our trading platform offers several popular indicators. Below are some examples. Bollinger Bands, stochastic oscillators, and Keltner channels are used to monitor the online forex market to demonstrate trends and patterns as they monitor price charts.
1. Bollinger Band scalping
The Bollinger Band indicator is useful for showing the volatility of the forex market. This benefits scalpers since their trades usually occur within a few minutes for each position.
Bollinger Bands are an effective forex scalping indicator when used with low spread currency pairs in the forex market; Bollinger Bands are an effective forex scalping indicator because these are the least volatile currency pairs like the EUR/USD, GBP/USD, and EUR/JPY and other major and minor currency pairs.
If executed correctly, it can provide multiple profits at a time.
2. Moving averages for scalping forex
On a typical forex chart, there are several moving average lines. However, scalping is commonly performed using simple moving averages (SMA) and exponential moving averages (EMA). These can represent the trend’s direction.
Forex scalping traders use moving average charts most frequently, as they can spot changes more rapidly than others.
3. Forex RSI scalping
Relative strength index (RSI) predicts forex market direction over time. The RSI tells overbought and oversold levels, oscillating between 0 and 100.
If the RSI is at 70 or above, it suggests an overbought condition, and here you should take a short position. Conversely, if the RSI is below or at 30, it’s an oversold condition, and traders must enter long.
It is one of the best forex scalping indicators.
Top Scalping Indicators with Trends
Why scalp the forex market?
- The fast-paced nature of scalping makes it attractive to many traders. Here are some reasons you should consider scalping:
- It is a simple strategy that anyone with little trading skills can learn and practice.
- A scalper is someone who trades for a very brief amount of time every day. Many scalpers, in fact, trade for less than 30 minutes every day.
- As a scalper, you don’t need to know much about the macro environment.
- It is easier to predict the market in the short term than in the long run. For example, one can forecast how the dollar will trade daily. No one can foresee how the dollar will behave over a longer period.
Tips for scalping forex
Here are some of the tips you can apply for forex scalping:
Look for the best times to trade
The best time to trade is when liquidity and volume are both high. Due to the fast pace of scalping, major currency pairs need liquidity to allow traders to dip in and out of the market rapidly.
Overlaps between sessions are when trading is at its most active. This occurs between 2:00 and 4:00 am and 8:00 and 12:00 pm (EST).
Concentrate on one pair at a time
Scalping is highly intensive. Thus, you are more likely to succeed if you put the whole of your efforts into just a single pair. It will be quite impossible for a beginner to scalp multiple pairs simultaneously.
As a result of monitoring multiple technical charts simultaneously, it cannot be easy to focus when trading multiple positions. You can proceed to deal with multiple pairs once you get experienced.
Trade with the most liquid pairs
Due to their image of having the largest trading volume, certain pairs provide the narrowest spreads. You will regularly put money into the market, so you should have your spreads as narrow as possible.
Create a trading plan
Before beginning, create a trading strategy. Setting up a rigid set of guidelines before opening a position is the greatest approach to maintaining your discipline during scalping. Your likelihood of success is higher if you have a comprehensive plan in trading forex.
Adhere to sound financial principles
Financial principles and risk management are crucial to all forms of trading. You, as a trader, will have to place many trades daily. You must strictly follow risk management guidelines to save yourself from a high risk of losing.
Take spreads into account
Spreads always play a significant role in your highest earnings because of how often you join the market. Scalping forex may cost more money than it makes, as trading fees are associated with every trade. Ensure that your take-profit is at least twice as large as your spread.
Implement restrictions and limits
You shouldn’t hold positions for a long time if you The financial impact of this is catastrophic. A stop should always be in place before opening any position.
Stay away from news
Trading amid eagerly awaited news announcements can be extremely risky. This might be due to slippage and excessive volatility. It sometimes happens that a news story causes a price increase that is surprisingly in the reverse direction of your trade. This is sure an awful experience!
If you are a novice scalper, it is usually advantageous to trade in line with the trend. Install trend lines into a daily and weekly timing chart to find the trend.
Concentration is the key
Not everyone is the right fit for scaling. For this difficult process, you need a certain disposition. The process of scalping in forex requires concentration and analytical skills. A successful scalper must be analytical, concentrated, and patient when making decisions.
You can not let your attention wander when working on making decisions. Scalpers must like the extreme concentration required to do the task.
The 1% rule
The “1% rule” stipulates that you should never stake more than 1% of your whole balance on a specific position.
It’s best to try scalping forex in the demo account first by sticking with the 1% rule.
Forex scalping: Is it profitable?
Forex trading may be very rewarding, but it takes a lot of work, effort, and patience. When profit margins on each trade are thin, a single error can knock out the gains from many winning trades. Thus, risk management and patience are necessary for your success.
A day trader, for example, may attempt to open 5-10 positions in a single session. A scalper may achieve that in a single hour on the market, holding each trade open for minutes or even seconds to profit by a few pips.
If you break from your strategy and allow a loss to run, your day’s profit may even be gone in an instant.
Risks associated with Scalping Forex
Forex scalping involves a high risk of losing, as with other forms of forex trading. Profits can pile up fast if many winning trades are made. However, losses can potentially do the same if the trader is inexperienced or employing a defective method.
Even risking a modest amount per trade might result in a large loss if those trades are not experienced. Leverage and scaled-up position sizes can also pose a risk. Sometimes, you work out a trade, and the price is either greater or lower than anticipated. This is called a slippage in the forex market.
This frequently occurs when important news is announced. These slippage situations can swiftly drain an account in a few instances.
What is an automated forex scalping system?
Scalping in forex involves paying great attention to the markets at all times, reacting quickly to price activity and sticking closely to a predetermined plan.
As a result, it may be no surprise that many forex scalpers have decided to automate their strategies, adopting scalping trading software to make trades instead of manually doing it.
But keep in mind that there are no get-rich-quick schemes in trading. Setting up algorithms to trade the markets effectively often requires more effort than manually – and you’ll still need to check and change your algorithm regularly to guarantee it doesn’t fail you.
How to start forex scalping?
- Sign up for a trading account. First, a live account grants you access to a demo account to practice with a virtual account worth $10,000.
- Decide which forex pair you want to trade. The more, the merrier!
- See how much the broker charge for trading. See if they offer competitive spreads and low-margin rates.
- Put stop-loss orders in place. When using a risky forex scalping strategy, you need to apply proper risk-management.
How to execute scalp trades?
It would help to find a broker with lower spreads and suitable conditions. You can’t rely on slow, traditional brokers for this. You need the right broker to maximise scalping’s already thin profits.
Scalpers often make hundreds of trades daily. How would it feel if each of those trades was charged a flat fee? It would quickly eat your profits away. Therefore, scalpers need zero-commission brokers to be successful.
You should find a broker who offers steep discounts to high-volume traders.
In direct market access, scalpers profit from the spread between the bid and ask price and time the price movement just right. Scalpers need a high hit rate on their trades to make money, so direct market access is necessary.
You must know exactly where and when your trade will be executed when you trade hundreds upon hundreds of pips daily.
Scalping trading requires more advanced charting tools. The key to scalping forex is speed. If you have a position open and closed within two minutes, a 15-minute candlestick chart isn’t very useful.
Scalpers need real-time price updates and 1-minute charts to pull off successful trades.
It takes time to find opportunities behind the screens. It’s also important to be agile enough to move out of losing trades because big losses are Kryptonite for forex scalpers.
In scalp trading, speed and precision are important. The strategy will likely be too expensive if you don’t have access to direct markets or a brokerage offering low/zero commissions.
The right and wrong time to scalp
Scalping involves high-speed forex trading and, therefore, a great deal of liquidity to ensure the quick execution of trades.
Trading major currencies should be done where liquidity is greatest and only when the volume is high. For example, this can happen when New York and London are active.
When dealing with forex, individual traders can compete with large hedge funds and banks – they need to set up the right account.
If, for whatever reason, you cannot stay focused, don’t scalp. You can be easily knocked off. Give yourself time to regroup if you have a string of losses. Do not try to avenge your losses on the market.
In addition to being fun and challenging, scaling can also be stressful and exhausting. So if you are interested in high-speed trading, you should ensure you have the right personality.
Scalping is a good way to learn and practice, and when you slow down, you may even find that you can become a day trader or swing trader thanks to the confidence and experience you gain. You are not required to scalp, however.
Keeping a trade log is always a good idea. Your trades can be recorded on screen and then printed for your journal. Your forex trading will become more apparent by keeping a trading journal.
Pros of forex scalping
- Your win rate, or the proportion of successful trades, will increase. A competent scalper may have an 80% win rate on all trades.
- The trader does not need to be well-versed in the forex market. Scalping on;t need fundamental analysis sometimes.
- It needs smaller capital. This is an extremely efficient method of trading. Holding trades can be costly in forex.
- Scalping can be a highly profitable strategy.
Cons of forex scalping
- To make a profit, you need to use leverage.
- Scalping is prone to market noise.
- Scalping can be tiring.
Technical analysis is considered a viable trading strategy in the forex market due to its size and liquidity. Retail forex traders can also assume that scalping may be a viable strategy.
Scalping occurs very quickly. You might enjoy scalping if you are interested in the action and like concentrating on one- or two-minute charts.
Scalping is a lucrative strategy to trade the forex markets, but only if you are disciplined and stick to your trading plan. Many traders become distracted by chasing rabbits rather than adhering to their plan, causing them to lose money over time.
Jason Morgan is an experienced forex analyst and writer with a deep understanding of the financial markets. With over 13+ years of industry experience, he has honed his skills in analyzing and forecasting currency movements, providing valuable insights to traders and investors.
Forex Content Writer | Market Analyst