What Is Scalping Trading

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Forex traders can use different roadmaps to reach the same goal. They monetize financial foresight through buying and selling at the right time. Currency pairs are traded via short and long positions, but the logic of opening and closing varies. Scalping trading is the most hectic style: here, trades are extremely short-lived. It is suitable for the most daring of Forex participants. Here is an overview of the strategy. 

How Scalping Trading Works

The basic Forex definition is simple: it is a market where you can buy or sell currencies to make a profit. Individuals connect to a vast over-the-counter market which has no physical centre. Every day, this immense global exchange sees volumes that reach 5 trillion US dollars. This is how much money circulates between institutions and retail traders including scalpers. 

So, what sets them apart from fellow traders? They aim to capitalize on small price movements observed throughout the day. Each trade can bring between 5 and 20 pips on average. It is also extremely short-lasting minutes or even seconds. Therefore, higher gains are achieved with high volatility or magnified position sizes. The larger the volume traded — the larger the financial result. 

Due to its hurried nature, Forex scalping is probably the riskiest trading style of all. It is clearly not for the faint-hearted. Traders need to be laser-focused. 

In comparison, long-term strategies are more relaxed, as you do not have to monitor the market so closely. For instance, in swing trading, a position may remain open for days or weeks. Such systems look at long-term changes, rather than momentary moves, and actions are less frequent.

Before You Begin

So, how does one excel in scalping Forex? Success in this field has many components. Be very attentive to how you structure your trades. If a single element is overlooked, failure is almost certain. 

It is a demanding style that requires full concentration. Here are three prerequisites for profit. These create the right conditions for scalping, but the result always depends on you.

Psych Yourself Up

Psychology is important. Trading is generally stressful, and scalping is the most intense type of all. You need to make decisions very quickly while following a consistent strategy. Unless you are stress-resistant, swing trading or day trading may suit you more. 

Generally, scalping is similar to day trading. It requires constant monitoring of the market. However, you need more focus to navigate minor changes. Reaction speed is crucial. Scalpers set goals and think their steps through very quickly. Entry and exit positions must be chosen fast. 

Exit strategies are also important. If a trade fails, you need to get out of it as soon as possible. This requires mental toughness, as emotions must not interfere. Traders accept their losses and move on quickly. Frustration may trigger even bigger failures, as you could start chasing losses. 

An advantage of scalping is that results are quick. You don’t need to wait for days before seeing the results. Still, every step must be thought through.

Fast Brokerage Service

As scaling is so hurried, it requires lightning-fast execution. Sadly, not all digital systems are equally responsive. It is crucial to find a broker that meets this criterion. For a scalper, every pip counts. Delays and glitches are disruptive. Do not take marketing promises on faith. 

Traders should look for brokers classified as ECNs (Electronic Communication Networks), STPs (Straight Through Processing), or DMAs (Direct Market Access). Why? Their prices are the closest to real market quotes. Market makers, or dealer-desk brokers, set their own Ask and Bid. These intermediaries may tweak pricing to their advantage. Their prices are also less volatile, so short-term changes are smaller. For a scalper, this translates into limited profit potential. 

Besides, not all account types are suitable. Some brokers offer schemes designed especially for scalping. Others prohibit their clients from following the scalping trading strategy. Therefore, make sure you can scalp before funding your live account!

Responsive Trading Platform

Today, the range of platforms is broad. Scalpers should choose the most responsive environments that allow quick execution without delays. Unless the system keeps up with your orders, you are likely to fail. Overall, it is important to test your trading terminal first. Speeds in the demo mode and live mode may differ. 

Scalpers may use a special type of service called ‘fill and kill orders’. These are only executed at the exact price or cancelled. 

Key Elements of a Forex Scalping Strategy

A trader’s behaviour must be consistent and comprehensive. The most effective trading strategy is based on a group of criteria. You need to consider the volatility of the market, its liquidity, volume, etc. So, what aspects are most valuable for scalpers?

The first thing scalpers look at is volatility. It determines the scope of their potential gains. The more volatile the instrument — the more pips each trade will bring. Both bullish and bearish markets can be profitable if you know what drives them. Large price swings are important for quick gains.

Here is how the ideal scalping environment looks. It includes three major stages: the price explodes, makes a short pause, and then explodes again. This allows traders to place their orders before the next spike. Generally, fluctuations are the strongest when markets overlap. For instance, this happens when the London session overlaps with the session in Tokyo or New York.

Like any trader, a scalper looks for the best entry and exit points based on trends. They may use special charts with tight timescales — between one minute and one hour. Anything larger is irrelevant, as traders zoom in on miniscule movements — roughly 10 pips per trade. However, before the session, scalpers do have a look at daily charts, so they can anticipate ups and downs expected on that day. 

So, what about fundamental analysis? Of course, your scalping strategy can be based on media information. However, attitudes differ. On the one hand, you may trade the news directly. On the other hand, some experts advise waiting until 30 minutes before a big newsbreak.  

Five Best Scalping Strategies

Scalpers make decisions using different helpful indicators. They pursue the same goal as their peers — making a profit from buying and selling in Forex. It is recommended that you use a group of factors rather than a single measurement. 

Scalpers may also combine several strategies. In any situation, they must look for confluence — this is when two measurements meet. Such points serve as more reliable signals to buy or sell. Here are five simple yet effective strategies worth considering.

1. Exponential Moving Averages

This Forex scalping strategy is based exclusively on EMAs or exponential moving average indicators. These are easy to interpret. They reflect the trend behind a currency pair, rather than its current value. An EMA is an average price over a certain period — for instance, 5 or 8 days. Traders are advised to use two or three EMAs to make decisions. The strategy is best for trending markets, both bullish and bearish. 

Traders follow the direction of the current price relative to their chosen EMA. When it moves above the average, this may trigger selling. If the current price falls below the EMA, this is a signal to buy. Using several EMAs provides better accuracy of decisions. 

This is particularly important when one indicator (e.g., 10 EMA) rises above or dips another one (e.g., 20 EMA). In a declining market, a fall below the lowest EMA triggers selling. In a rising market, a price above the highest EMA triggers buying. 

Traders should follow special rules when placing their stop-loss. The best location is slightly before or after the meeting point. This way, trades are not stopped out too soon. Place Stop Loss at some distance from the lowest price.

This strategy pairs EMA indicators with the current price. This enhances reliability, so traders have more confidence in their entry and exit points. It is important to remember that EMAs reflect past movements, so they always lag behind the real trend. 

2. Volume and Price Action

This strategy is based on the premise that price action is preceded by changes in volume. As more traders join in, and larger amounts are traded, the trend is reinforced and the price for the instrument changes. On the other hand, low volumes indicate that a decline or a break is coming soon. Therefore, the volume serves as a signal and price action as confirmation.

The general sequence is low volume — high volume — price action. Scalpers use this knowledge to spot the best entry and exit points. If they rely on this strategy, they need to be patient during periods of ranging. 

Your goal is to identify changes in volume and price action and take action accordingly. Traders aim to buy before the instrument gains value, and sell before it depreciates. Always wait for confirmation of an uptrend before trading on volume alone.

Scalpers need to use a reliable source of data to succeed. Some brokers claim to offer volume estimates, but these only reflect the amounts traded through them. As the currency exchange is decentralized, there is no single source of official figures. This is the biggest problem. Finally, traders are advised to trade a series of movements. They should look for confirmation before relying on a single rise or fall.

3. Stochastics and a Trend Line

Coupled with the indicator, a trend line can provide reliable signals to a scalper trader. Stochastics shows if an instrument is underbought or overbought. Any value over 80 points to overbuying and anything under 20 shows the opposite. The indicator is most convenient in trending markets. Here is how to use it.

A trader should first draw an uptrend using their trendline tool. This may be replaced with a channel pattern for more prominent support and resistance. When the price crosses over the line or reaches it, they know it is time to take action. The next step is to identify an overbought or underbought condition. Stochastics is then applied to open or close positions on pullbacks.

Inclusion of two conditions makes this trend more reliable. First, you trade on a trend. Secondly, you check if it is underbought or overbought via stochastics. 

4.Support and Resistance

Here, traders focus on support and resistance, both dynamic and static. Each line is formed with at least three points. Static levels are observed at the beginning of the trading day. These are the highest and the lowest points that must be considered. 

Support and resistance throughout the day are defined as dynamic. This is because they are changing all the time based on market movements. Moreover, these levers are subjective, as traders may see them in different segments of the chart. The best points for long and short positions are where the static and dynamic lines converge. Traders may use other indicators to achieve higher accuracy of their predictions. 

5. Bollinger Bands

These are indicators of volatility. The further they diverge from the centre — the less stable the market. Bollinger Bands measure the peaks and bottoms for an instrument. They will tell you when the market is ranging, so conditions are not suitable for scalping. This is when the bands are placed tight to one another.

Scalpers open long or short positions based on the location of the bands. When the price reaches the lower band, buy. When it reaches the upper band, sell. Generally, it is best to stick to the 10-pip rule in both situations. This will prevent you from getting stopped out. 

Keep It Simple

Not all traders agree that simplicity can bring good returns. In fact, it is largely underrated. However, simple courses of action may bring higher profits than complex systems. The reason is that simple strategies are easier to follow. They are also easier to repeat. The fewer elements you need to follow — the lower the probability of mistakes. 

Using only a couple of indicators reduces the psychological pressure. As a consequence, scalpers have less difficulty adhering to their strategy. Emotions can mess up any trade. The fewer things you need to analyse — the better. Still, you need at least two indicators to ensure confluence. 

Consider the strategies described above. Using one or two of those will suffice. Find the system that works for you and follow it. 

Importance of Backtesting

Do not rush into applying the first Forex scalping system that seems convenient. Any approach must first be tested, even if it is a textbook example. This is because trading must suit your personal style. The most effective theories may be at odds with your preferred trading behaviour. Use a demo account to backtest every system. 

Demo trading is not only suitable for rookies. Even experienced traders may use it to test new styles. The risk-free practice is crucial. You need to feel comfortable using the controls and applying the approach to market conditions. 

Naturally, real trading is always different from the real thing. This is because brokers only simulate trends, and there is less emotional pressure as no money is involved. Still, the demo mode is invaluable. 

Scalpers need to be aware of other differences, too. Execution times in the demo and live mode may differ. As prices are always in flux, slippage is a possibility. It can be positive or negative. 

In any case, you should start small. Follow the rule of thumb: risk less than 2% of your balance per trade. The lower the stakes — the better. Until you gain sufficient confidence, keep volumes low, and steer clear of leverage! 

Key Takeaways

These are the basics of how to do scalping in Forex. This strategy is demanding and fast, as it gives you little time to analyse your moves. Inexperienced traders should consider less hurried systems, as they cannot withstand the pressure. Scalpers look out for momentary changes and place multiple orders throughout the day. 

Do you think you have the right mindset to succeed? Scalping is for the most stress-resistant. Traders need to control emotions and make decisions in an intense environment that changes every second. Psychology plays an important role: only some people feel comfortable scalping. You need the patience to earn a hefty profit from a series of small trades. 

Still, even the most talented scalpers may fail if their platform is not fast enough, or brokerage is substandard. Make sure your broker allows scalping, and execution works as it should. Even the slightest delay can result in disappointment. 

A scalper makes multiple decisions in a single day. They draw conclusions from groups of indicators and news supplied by the finance media. Whether it is technical or fundamental analysis you like, price charts are essential. Look for confluence, and have a clear approach to trading the news.  

Whichever method you choose, keep it simple. Basic strategies may be just as profitable as complicated systems. Trade responsibly and follow the rules. Scalping is not for the risk-averse, but it is thrilling for those who can handle the stress! 

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This post is also available in: Indonesia

About the author Freddie North

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