What is Forex scalping?
Forex scalping is a trading technique in which traders profit from small price swings that occur in the forex market. These trades are usually left open for a short duration of seconds to minutes, after which they’re closed as a profit or loss. Due to the short-lived nature of these trades, scalpers often have to trade on lower time frames. The analysis, however, should involve an examination of the currency price from a higher time frame perspective. This provides a holistic overview of the market condition which guides trade execution and management.
There is no hard and fast rule about the duration of scalp trades and the number of pips each trade should make. But, scalp trades are typically held for a shorter duration than day trades. Some scalpers prefer to profit from the volatility injection caused by news releases and volatile session hours.
Is forex scalping profitable?
Scalping, just like other styles of trading, is profitable. The trading results obtained depend on how skilled the trader is. Many profitable scalping strategies are being employed by traders today, and you can learn any of them before getting started with scalping. Forex scalping usually results in a series of small profits which add up to a larger sum. The fast-paced scalping environment is great for traders who want to compound their capital easily.
Though scalp trades generally comprise fewer pips than day trades, this doesn’t make them inferior or less profitable. The position sizing that scalpers use is usually enough to secure significant profits even with the fewer pips made.
How to Scalp in Forex Trading
1 Learn a Scalping Strategy
The first step to scalping successfully is to learn a scalping strategy. Most strategies can be applied to multiple time frames and trading styles, but some are dedicated to helping and short-term trading styles. You can learn a scalping strategy from free or paid courses, video lessons, ebooks, and other sources of information.
There are many strategies to choose from and they vary depending on the trading technique, indicators used, the risk to reward ratios, etc.
2 Open a Trading Account
You can set up a trading account on a brokerage platform and execute trades in line with your trading strategy. Before opening a trading account, make sure your broker is regulated and reputable. This protects your capital and ensures that you get the best services at all times. You may also need to evaluate the trading conditions of the trading platform; spreads and commissions, tradable currencies, etc.
As a scalper, low spreads and commission are highly desirable. You can opt for brokers with zero or ultra-low spread. This ensures that your trades are executed and managed with a high degree of efficiency.
3 Decide Which Pair to Trade
Before each trading session, you can decide which pairs to trade, and there are several ways to do this. For instance, you can analyze the economic calendar and choose to trade pairs that have upcoming news releases and as such, are likely to be volatile. Additionally, you can carry out technical analysis using different strategies to find the pairs that provide optimal entry and exit points for you. The traded pairs also depend on the trading session. Japanese yen crosses can be scalped in the Asian session due to their high volatility in the Asian session hours.
4 Choose to Buy or Sell
Once you’ve decided which pair to trade, you can choose to scalp by buying or selling. The forex market allows traders to profit in uptrends and downtrends so you should decide the best approach for you. The optimal buying and selling prices depend on the results of your technical and fundamental analysis.
5 Manage Your Risk
The hallmark of successful trading is discipline and risk management. Risk management is a great way to protect your capital by predetermining your risk per trade. This helps you manage your trades and limit your risk exposure. Scalping is fast-paced but with proper planning, you can find ways to manage your risk as you enter and exit your trades. Some traders use trading robots that handle the position sizing for each trade while others calculate their risk before the trading session begins.
Top Forex Scalping Strategies for People to Use
1 Support and Resistance
A Resistance level is a price ‘ceiling’ that buyers have failed to break above. A support level is A price ‘floor’ that sellers have consistently failed to break below. To confirm the formation of a support/resistance level, you have to wait for the market to fail to break above the resistance or break below the support level. You can buy at the support level and sell at resistance levels. These are known as key levels and they can form the basis for your scalp trades
2 Fibonacci Strategy
The Fibonacci is a trading indicator that helps traders determine when to buy or sell in the direction of the market trend. After an Impulse move up or down, price retraces before the trend continues. Fibonacci levels help to determine the areas where the price would find support or resistance before the move continues.
Knowing these levels helps you trade in the direction of the trend.
3 Moving Average Strategy
Moving averages are known as dynamic tools of support and resistance. This is because they help to determine the price levels that would act as resistance and support levels in a trending market. The moving averages also show the market trend and the momentum of the trend. Some scalpers use a strategy known as the moving average crossover.
This occurs when two moving averages cross each other, signaling a change in the forex market trend. These indicators can be used on lower time frames for scalping because they’re highly responsive to price changes and easy to use. There are two types of moving averages; smooth moving averages and exponential moving averages.
4 Relative Strength Index(RSI)
The relative strength index is an indicator that can be used for scalping in different market conditions. It helps traders to determine the best prices to buy or sell by identifying the overbought and oversold market conditions. This knowledge helps traders find the best time to buy or sell a currency pair with a high probability of making profits.
This indicator has a scale of 0 to 100, with the midline at the 50 levels. If the RSI trades below the 50 level, the trend is considered bearish. If it trades above the 50 level, the trend is considered bullish. While scalping, you can buy when the market is oversold, and we sell when the market is overbought.
Which strategy is best for scalping?
There are many scalping strategies in use today, but the best strategy is whichever one you can make profits with. It’s entirely up to your preference, but make sure to test your strategy and ensure that it is profitable before risking your capital.
What is the best time to scalp forex?
The best time to scalp is during the volatile and liquid trading hours of the day. This is usually during session overlaps. Some traders prefer to scalp during the news releases because they’re often associated with high market volatility.
Tips to Remember in Forex Scalping
1 Follow your trading plan
The trading plan provides instructions that guide your trades and trading decisions. Male are you following these rules to prevent yourself from making trading errors.
2 Manage Your Risk
Risk management is a crucial aspect of successful trading. Manage your risk by risking a predetermined fraction of your account per trade.
3 Practice
Scalping requires fast thinking and decision making processes. The best way to improve your results is to practice by backtesting or trading on a demo account to improve your skills.
Try out Forex scalping with Decode Global
Scalping is a profitable strategy used by many traders around the world. To make the most of your strategy, you should trade with a regulated forex broker with favorable trading conditions. This ensures that your trades are executed and managed seamlessly while securing your profits.