How to Scalp in Forex: A Guide to Scalping
In this overview, we will discuss what is scalping and whether it suits everyone. Scalping is a popular method of short-term trading in Forex with the use of leverage.
What is scalping?
Under scalping, traders mean short-term intraday trading strategies. The term originates in the Latin “scalpere” - “to cut”. Scalping presumes a lot of intraday trades – short and with modest goals. The technique consists of quickly “cutting” small profits off the price movement.
The option of marginal trading (i.e. with the use of leverage) has made scalping quite a popular strategy. A small fluctuation by a couple of points can bring the trader a serious profit thanks to large leverage. Scalping is perfect for traders with a small deposit that does not allow for long-term positional trading. For scalping, we use small timeframes: M1, M5, M15.
Unlike many other strategies, scalping requires much time and effort. You have to keep a close eye on the market the whole day, find entry points, and make trades. Potentially, scalping can bring large profits, but in practice, it requires a well-tried trading strategy and psychic and emotional stability.
Who is scalping suitable for?
Scalping does not suit everyone. The profitability of each trade is usually low, and a significant profit is reached by aggregating the small profits from multiple trades. A scalper must be patient to wait for their effort to bring fruit. To become a successful Forex scalper, one needs self-control, attention, and discipline.
Scalping requires much more time and accuracy than any other strategy, such as swinging or trading the trend. A typical scalper opens and closes dozens of positions during a typical trading day. For some people, such a task might turn out overwhelming.
Advantages and drawbacks of scalping
Let us have a look at the positive and negative sides of scalping in Forex.
The advantages of scalping
- The strategy is potentially profitable both in the short and long run;
- You do not need to wait for a trend to form in the market. You can scalp any time: by trading the trend or trading against the trend, or in a flat;
- Market analysis becomes simpler. You use tech analysis and indicators to estimate short-term trends; fundamental factors are accounted for selectively;
- It is suitable for trading on small deposits. Thanks to leverage, you can open significant positions and make profits even on a moderate deposit.
The main disadvantages of scalping
- Choosing a decent broker is difficult. You need advantageous trading conditions for scalping: minimal spreads and commission fees, no critical slippages. Not every broker can provide all this;
- An increased risk connected to large leverage: even a small market step against the trader can entail serious losses, that is why you need to use the rules of risk management;
- You spend a lot of time and involve deeply in your trading. You have to keep an eye on the market constantly because you open dozens of positions. Scalping eats up much of your energy and might end in a professional burnup.
- A limited number of available trading instruments. Not any instrument suits scalping. To decrease expenses from a large number of trades, choose assets with minimal spreads.
How to succeed in scalping?
To increase your chances for success, you will need the following.
1. A tried and reliable trading strategy
It is the main instrument of a scalper that helps to make a stable profit. You can make a random profit several times, but without a proven strategy, a trader is destined for misfortune in the long run. Hence, start with testing your strategy on a small deposit or demo account.
2. A trustworthy broker with suitable trading conditions.
The trading conditions provided by the broker influence the results of scalping tangibly. Apart from being reliable and having a license, your broker should be loyal to scalpers and provide high-quality services. A high speed of order execution, low spreads and commission fees, acceptable slippages are the criteria that a scalper should check.
3. Suitable instruments
Not all instruments suit scalpers. The most popular ones in Forex and majors, because they boast minimal spreads and commission fees. You can also use certain cross-rates, as for exotic currency pairs, their spreads are too large.
4. Right time for trading
The time when you trade is also important. Analyze your strategy and decide at what time of the day it works the best. Or, it may yield the best results during a certain session: Asian, Pacific, European, or American. If so, try to trade at this time.
5. Analyze your trading statistics
Investors say that you previous success does not guarantee success in the future. Hence, you need to analyze your trading regularly, shooting troubles. A useful instrument is a trader's diary. It can increase your discipline, find mistakes, and master your trading style.
Trading strategies for scalping
Nowadays, you can find plenty of scalping strategies on the net. Still, approach every strategy individually: one trader prefers an empty price chart, another one enjoys indicators, the third one sticks to automatic trading.
Choose your strategy based on your preferences and test it well on a demo account before trading for real. Now let us discuss three strategies meant for scalping.
Victory trading strategy
This is a strategy that uses indicators; it consists of scalping on M1 and M5. The indicators used are the TMA, TMA Size, CTF, Currency Power Meter, SSRC, HP DIFF. In our blog, we have a detailed article about this strategy.
A scalping strategy with two Moving Averages (EMA)
This is a mixed strategy that supplements tech signals on smaller timeframes (M1, M5, M15) with the crossing of two EMAs. The strategy uses tech analysis patterns, support, and resistance levels, the crossing of two EMAs with different periods. This strategy is also described in detail in the article "Scalping Strategy with Two Moving Averages (EMA): Description and Rules".
BF Scalper Expert Advisor
It is an automatized scalping strategy. The expert advisor uses several technical indicators, the MAs and Bollinger Bands; the timeframe used is M15. The expert advisor demonstrated satisfactory results on tests. Again, take a look at the description in our blog.
Scalping is a popular way of trading in Forex. It helps to make a good profit even on small deposits but requires much effort and durability from the trader. You need all the conditions to be met (the strategy, broker, etc.) and to control risks to succeed.