Forex is one of the biggest financial markets in the world, and there are many trading strategies to trade forex. One of these methods is forex scalping. This refers to the skimming of small profits from a large number of forex trades.
In this beginner guide, we share how you, too, can start scalping trading the right way. From scalping strategies to scalping indicators, we cover all the basics that you need to know before trying this method of forex trading.
Table of Contents
What is scalping in forex trading?
When doing forex scalping, traders tend to make profits from buying and selling assets in a short period. Most of the time, scalpers tend to use real-time analysis to aid their trades. The trades they take part in are always short-term and always tend to end within a few minutes or so.
At the first glance, scalping might seem very similar to forex day trading. They are both involved in short-term trades and always close any open positions before a trading day is over. When compared to other strategies, scalping tends to be more intense as traders must make multiple trades during a single session.
Unlike the day traders, forex scalpers focus more on the one-minute, five-minute and tick charts. These types of charts are capable of allowing traders to catch high-velocity movements to make scalping profits.
As you should know by now, a pip is the unit of measurement of the asset price in forex. When scalping, scalpers only target to earn just a few pips at a time. Since the average value of a pip is $10 per standard slot, scalpers do not make much money from an individual trade. As a result, forex scalpers tend to do a large number of trades to earn a respectable amount.
One of the best features available for forex scalpers is the availability of leverage. Leverage allows traders to use borrowed funds to increase their trading position.
Is forex scalping profitable?
When done correctly, making profits by forex scalping is a simple task. Not only these are short-term trades, but they also allow traders to gain a return on a daily basis.
All you have to do is be consistent and use the best indicators for scalping to stay one step ahead.
But you should keep in mind that the profits that scalpers earn depend on their experience, trading strategy, and the currency pairs that they trade.
One thing that traders should be aware of is that scalping is not easy as it seems on the surface.
To become a successful scalper, you will need to put in a lot of work and also have a good understanding of the market price actions. In addition, a viable trading strategy also plays a large role in your chances of success.
When scalping, all the trades that you take part in won’t go your way. To manage situations like that, you will need to have a solid risk management strategy. Having a good risk management strategy will allow scalpers to strengthen their financial stability in the long run.
Another factor that can affect profitability is consistency. It doesn’t matter what strategy you use; you will need to be consistent in order to maintain your profits. Keeping your trading consistency up is the best way to ensure that your scalping is profitable as you intended.
Discipline is also something that you need to master to raise your profitability to the highest possible level. Further, a viable trading plan is also important to forex trading and your financial stability.
While all of these are true, practice is what makes things perfect. So, make sure to use a demo account to practice what you have learned before going to actual trading. This will allow any trader to become better at trading as well as scalping.
Pros and Cons of trading forex with a forex scalping strategy
- Faster trades – Scalp trades do not take much time and allow for faster trade completion. Trades taking long can be stressful, but since the scalping positions aren’t held for, it becomes much less stressful. This also allows traders to place multiple trades per day.
- Scalable profits – Scalping is a short-term trade, and the profits earned with a single trade are small. But by repeating the trades, traders can easily scale the profits that they can make.
- Regular profits – With scalping, traders can expect to earn profits on a daily basis rather than waiting for a long trade to complete.
- Requires less forex knowledge – When compared with other trading strategies, scalping is a strategy with a smaller learning curve. This makes scalping one of the best strategies that even a beginner can get the most out of.
- A bit risky – Risk is something that comes naturally with the forex market due to its volatility. While most traders use risk management steps like not risking more than 2% of your account balance per trade, scalpers do not follow these. This makes the market even riskier for scalpers than average traders.
- Needs a lot of dedication – While scalping seems simple on the surface, it is a strategy that requires a lot of dedication from the trader. Scalpers must be patient and aware of the market situation at any given time to jump on any opportunity that arises.
- Needs a bigger deposit – Scalping traders must have access to a reasonable fund to jump on any trade that they see as profitable. While leverage can help with this, it’s better to have funds in the account.
- Prediction can be difficult – Predicting the market price movement is not an easy task, especially on a smaller scale. Even with the best indicators for scalping, traders can’t speculate the price action 100% accurately.
Two ways to forex scalping
When going about forex scalping, there are two ways that traders can follow. Scalpers can follow either signals or price actions to improve their chances of success. Each method comes with its own ups and downs, and let’s take a closer look at each one of them.
Price Action Scalping
For most scalping endeavors to succeed, they need to get help from the best indicators for scalping. But the good thing about forex price action scalping is that it does not depend on indicators.
Technical analysis charts are the main focus here, and price action scalpers tend to use candlestick charts a lot. These allow scalpers to easily identify support and resistance levels and trendlines, just like any indicator. When doing price action scalping, traders tend to ignore fundamental analysis and all other external factors.
Forex Signal Scalping
Unlike price action scalping, signal scalping involves heavy usage of the best indicators for scalping. Traders use indicators to identify entry points and exit points to gain the most profit.
Signal providers always target a certain number of pips to allow scalpers to spot potential tradeable opportunities in volatile or quiet markets. These signals are mainly based on forex scalping indicators and economic events like inflation, economic growth, supply and demand, trade status, interest rates, and account balance.
Best Indicators for Forex Scalping
Now you have enough knowledge about scalping and scalping strategies, it’s time to move on to the best indicators for scalping. Below are some of the most used indicators for scalping.
Moving averages (MA): Best Indicators for Forex Scalping
With MAs, traders can easily identify emerging and common trends in markets. These are mathematical formulas that come as a single line showing average values. Simple moving averages (SMA) and Exponential moving averages (EMA) are the two main types. SMA adds a set of numbers and divides by the number of values in that set, while EMA reacts to more recent price changes.
Bollinger bands: Best Indicators for Forex Scalping
With many considering it as one of the best indicators for scalping, Bollinger bands indicate the areas of market volatility. These use SMA with a standard deviation set above and below to display the volatility. If the bands are narrow, it shows the market is stable and signals an upcoming breakout, while wider bands indicate increased volatility and an upcoming retracement in the market.
Relative strength index (RSI): Best Indicators for Forex Scalping
This is a momentum indicator that is capable of signaling if the market’s current direction might be about to reverse. RSI uses levels of support (30) and resistance (70) to provide information about the market direction. If the RSI goes above 70, the market is overbought and short positions are ideal, and if the RSI goes below 30, the market is oversold, and long positions are ideal.
Stochastic Oscillator: Best Indicators for Forex Scalping
This is one of the best indicators for scalping that scalpers use to predict when a trend may turn bullish or bearish. A stochastic Oscillator falls under the technical indicator category and compares the current value of an asset to its recent market activities. This also uses a scale of 0 to 100. If the value goes above 80, it shows an overbought amount, while values below 20 indicate oversold amounts.
Forex scalping strategy – Best Pairs
To do forex scalping, high liquidity is necessary. This makes all the major currencies ideal for forex scalping such as
- U.S. Dollar (USD)
- European Euro (EUR)
- British Pound (GBP)
- Canadian Dollar (CAD)
- Japanese Yen (JPY)
Here are some of the forex pairs that scalpers can use to earn more profits.
- Major pairs: EUR/USD, USD/JPY, GBP/USD.
- Minor pairs: EUR/AUD, EUR/JPY, GBP/JPY.
- Exotic pairs: USD/SEK, USD/MXN, ZAR/JPY, USD/ZAR, USD/TRY.
Forex scalping strategy – Best Time
Volatility plays a large part in the profits that a scalper can earn in a short period. This makes the opening of the trading session the ideal time to do scalping trading. There are three main sessions that the forex market takes part in.
- The London session
- Asia-Pacific session
- North-American session
These market sessions overlap and create overlapping trading sessions. This is where the trading activities and the volatility are the highest. So, make sure that your location and the pairs traded align with these sessions to get the most out of your opened positions. Trading at the same times of day as institutional traders, such as banks, when the volume is high is the best way to ensure high volatility.
How to build a profitable forex scalping strategy?
If you are thinking about doing forex scalping, having a good scalping strategy is mandatory. There are a few aspects that every scalper should consider when developing the strategy. This includes
Time: Time your trading time to match with the session ending or closing to get the best volatility.
Risk management: A good risk management strategy is necessary since scalping involves high volatility.
Discipline: Good discipline is necessary to avoid risks and maintain the longevity of your scalping career.
Volatility: Trading with volatility is the best way to maximize the profits that a trader can earn from scalping.
Broker: Check and see if the chosen broker is capable of providing a suitable scalping environment for you.
Forex Scalping Tips
- The best way to ensure your success is with the help of the best indicators for scalping. These will provide you with clear entry and exit points when used correctly.
- Always trade high liquid currency pairs to maximize your profits.
- Focus on one currency pair at a time when scalping. This will allow traders to easily monitor technical charts and take necessary actions.
- Patience and concentration are the keys to scalping success. Take your time and avoid making hasty decisions with the hope of making a profit.
Forex Scalping is a great way to make short-term trades in the forex market. If you are interested in using scalping in your strategy, you need to be well aware of how it’s done and come up with a solid strategy that can maximize your profits for the minimum risk. Here choosing the right currency pairs to trade and broker is also important.
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Yes, forex scalping is one of the most profitable trading methods. But the scalping profits depend on dedication, patience, and the scalping knowledge of the trader.
Forex scalping trading indicators are vital for scalpers to gain price action information. Among the many available indicators, Bollinger Bands tend to be the most used forex scalping indicator.
High liquidity is necessary for scalpers to gain consistent profits from traders. This makes highly liquid pairs like USD/EUR and GBP/USD ideal for scalping.