Even if you're just dipping your toes into the world of Forex trading, chances are you've stumbled upon the exhilarating term known as "scalping Forex."
Think of Forex scalping as a roller coaster ride, filled with exhilarating twists and turns, it's a fast-paced trading style, a thrill-a-minute endeavor that demands your unwavering attention.
In the following guide, you’ll learn what is scalping in Forex, we'll dive deep into the mechanics of how Forex scalping works, shedding light on how it operates and exploring the intricacies of choosing your very own Forex scalping strategy – with a special focus on the popular 1-minute scalping strategy.
What is Forex Scalping?
Scalping in Forex means a short-term Forex trading strategy that aims to open and close multiple trades for extremely brief periods typically held for mere seconds or a few minutes at most. Unlike swing trading, where positions can last several days or even weeks, the primary goal of Forex scalpers is to secure small increments of pips repeatedly during the most active periods of the trading day.
In other words, the scalping forex strategy revolves around the concept of frequent, rapid trades, where profits are earned by capitalizing on small price movements – 5 pips and up to 10 pips per trade.
Source: TradingView EURUSD 1-Minute Chart
But you might wonder, how many trades a day do scalpers take?
The range can vary, but it's not uncommon for scalpers to place anywhere from 10 to 100 or even more trades per day. High-frequency scalping strategies (HFT) which use algorithms can even take hundreds of trades daily.
The underlying motive is to capitalize on even the smallest profit opportunities that arise in the market. Scalping, with its frequent trade entries and exits, enables traders to expose themselves to less risk while increasing the overall number of trading opportunities.
In the Forex market, scalping involves buying and selling currency pairs that typically rely on signals derived from technical analysis charting tools in comparison to position trading which can also rely on fundamental analysis.
Is Forex scalping good for beginners?
The answer lies somewhere between "Yes" and "No."
If you possess the temperament to react swiftly and are comfortable with incurring very quick losses of no more than a couple of pips, then scalping may be a viable option for you.
If you’re wondering “Should I scalp forex?” test your strengths and weakness and consider your personality and trading goals before diving into forex scalping as a beginner.
Factors suitable for scalping:
You’re a fast thinker.
Handle fast-paced trading.
Have intense focus abilities.
Be able to change your trading bias rapidly.
Possessing fast reflexes and nimble fingers.
Being comfortable with a high frequency of trades.
Factors not suitable for scalping:
Slow thinker.
Getting easily stressed by rapid price movements.
Preferring fewer trades with higher profit gains.
You’re an impatient trader.
Now that we know what is scalping Forex traders also need to know how the Forex scalping methods work.
How Forex Scalping Works
When it comes to understanding how the Forex scalping trading strategies work, there are several key factors to consider. Let's delve into some Forex scalping tips:
Step 1: Choose High Liquidity Currency Pairs
Opt for currency pairs like EUR/USD, USD/JPY, and GBP/USD with high trading volume and tight spreads. Currency pairs in the Forex market tend to exhibit high volatility, presenting numerous opportunities for scalpers daily.
Opting for liquid markets like EUR/USD minimizes the risk of slippage, which occurs when you cannot execute a trade at your desired price due to inadequate liquidity.
Step 2: Trade only during London and New York trading sessions
The most opportune moments for scalping Forex scalping are during session overlaps, particularly from 2:00 am to 4:00 am and from 8:00 am to 12:00 noon Eastern Time (EST). These periods tend to exhibit heightened liquidity and increased trading activity, offering a greater number of trading opportunities for scalpers.
The round-the-clock Forex market which operates 24/5, enables traders to develop a Forex scalping system that suits their schedule. However, certain times may offer more favorable trading conditions than others.
Source: TradingView EURUSD 5-Minute Chart
Step 3: Overcome the Spread Challenge
Tight spreads are crucial as frequent entries can accumulate costs. Aim for targets at least double the spread to cover potential trend reversals. Another approach to mitigate the spread problem is to utilize limit orders instead of market orders and use Forex brokers with Direct Market Access (DMA) or at least trade on ECN platforms.
With low spread Forex brokers scalping is more profitable and less stressful. So, visit our best Forex brokers for scalping in 2023 comparison page.
Step 4: Specialize in One Currency Pair
Start scalping with one currency pair and concentrate your energy on a single pair initially to improve your chances of success. Trying to scalp multiple pairs simultaneously can be risky for beginners.
Once you become accustomed to the pace and dynamics of Forex scalping you can gradually introduce additional currency pairs to your scalping Forex strategy.
Step 5: Apply the 2% Rule
Implementing proper risk management is crucial in Forex trading scalping, and one popular approach is the 2% rule. This rule suggests that you should never risk more than 2% of your account balance on any single trading idea.
For instance, imagine you have a trading account with a balance of $30,000. According to the 2% rule, the maximum amount you would risk on a single position is $600.
To further illustrate the concept, let's consider a 2:1 risk-reward ratio. With this ratio, the goal is to aim for a profit that is twice the amount at risk. Applying the 2% rule, if you risk $600 on a trade, you would target a profit of $1,200 and this would result in a $1,200 gain on your $30,000 account balance. Conversely, if the trade goes against you, you would incur a loss of $600.
Is Forex Scalping Profitable?
Forex scalping can be profitable when approached with proper risk management. By risking only 2% of your trading account per trade, skilled traders can aim for monthly profits ranging from 3% to 8%. For example, with a $20,000 account, risking a maximum of $400 per trade can potentially result in monthly profits of $600 to $1,600.
Forex scalping profitability simulation
However, how much money do scalpers make it comes down to account size, Forex spreads and commissions, position sizing, and how profitable.
Scalping is not tailored for those seeking to consistently achieve significant wins, but rather for those who prefer accumulating small profits over the long term to generate an overall profit.
Forex Scalping Trading Strategies
A scalping strategy forex traders can use to take advantage of the shorter timeframe is the 1-minute scalping strategy.
In the vast sea of minutes that make up each day—1440 in total—lies a window of opportunity for Forex scalpers to extract substantial pips from the market. Engaging in the 1-minute chart, trades are executed within a remarkably short duration of 5 to 10 minutes.
This simple Forex scalping strategy requires the following:
Instruments: Only major currency pair.
Time frame: 1 minute (60 seconds) TF.
What are the trend indicators for scalping: 50 and 100 periods Exponential Moving Averages (EMA) and the Stochastic oscillator.
Best time of the day for scalping: London and New York trading sessions.
These indicators work harmoniously to assist traders in identifying trends, a crucial aspect of successful scalping.
How to determine Forex trend direction
The initial step is to identify a trend, as a market showcases an extended move in a particular direction. An uptrend manifests through a series of higher lows and higher highs, while a downtrend is characterized by lower lows and lower highs.
Understanding the broader trend provides valuable insights into potential price actions on shorter scalping timeframes.
How to use the trend indicators to confirm the trend:
To ascertain an uptrend, the current price movement needs to be positioned above both the 50-day and 100-day exponential moving averages (EMAs).
Conversely, in a downtrend scenario, the current price movement should be situated below both EMAs.
Source: TradingView EURUSD 1-Minute Chart
How to scalp trade
For a buy setup, the following trading plan comes into play:
Wait for the 50-EMA to cross above the 100-EMA to confirm an uptrend.
Wait for the price to pull back and to test either the 50 EMA or the 100 EMA.
The stochastic oscillator must break above the 20 levels, affirming bullish support on either EMA.
Once the conditions are met, open a long position.
Source: TradingView EURUSD 1-Minute Chart
Conversely, for a sell setup, adhere to the following trading plan:
Wait for the 50-EMA to cross below the 100-EMA to confirm an uptrend.
Wait for the price to pull back and to test either the 50 EMA or the 100 EMA.
The stochastic oscillator must break below the 80 levels, affirming bearish resistance on either EMA.
Once the conditions are met, open a short position.
Source: TradingView EURUSD 1-Minute Chart
To maximize gains, the ideal take-profit objective for this easy Forex scalping strategy is set at 5-10 pips from your entry point, with a protective stop loss placed 2 to 3 pips under or above the EMAs.
Final Thoughts
It's crucial to note that scalping requires a larger trading account to manage the necessary leverage and make the small trades count. Traders must be prepared for the rapid pace and intense focus that scalping demands as it is not suitable for those who prefer to thoroughly analyze and ponder each trading decision.
The 1-minute system is an easy Forex scalping strategy that beginner traders can use if it aligns with your trading style, personality, and risk tolerance. It's essential to understand your temperament and goals to determine whether scalping aligns with your trading approach.
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