What is scalping? Scalping in forex refers to a trading strategy that generates profits from a series of trades within a short period of time.
Scalping generally is considered to be risky for new traders since the trend is chaotic in short-term charts (the so-called price noise effect) and hence difficult to anticipate.
And it’s not a wrong generalization. New traders lack the patience and skill to scalp. With the emphasis on the skill.
Although trades are closed quickly, they require proficient analytical skills which many new traders may not have.
To make a profit, a trader must carry out dozens of such trades in a single day, but the number is unimportant.
Picking an appropriate time in regards to predicted volatility is one of the prerequisites for successful scalping.
When to Scalp
Scalpers typically work in timeframes ranging from one minute to fifteen minutes.
Notwithstanding, the one- or two-minute timeframes tend to be favoured among scalpers.
As of the time of day, the recommended time would be the period when the market is most volatile.
This usually occurs at the beginning of a trading session.
The time frame and session are denominators for a successful scalping strategy.
Once you miss the volatile hours, your chances reduce as well.
They basically are your typical Win-Now traders.
Too interested in every possible pip so they jump on literally as many pips as possible.
Some call it greed but deep down, they can’t fundamentally disagree with the strategy.
To successfully scalp, you must select a highly liquid currency pairing.
Invest your time in the market, check price movements, and then use trend analysis to determine an appropriate entry point.
You can then buy a particular quantity of your preferred currency and wait for it to start appreciating vary slightly within a one-minute window.
When it reaches a certain level, you sell your holding and bank the profits before doing it all again.
3 Important Scalping Tips in Forex
#Scalping Tip 1 – Focus on a Currency Pair
To increase their chances of success during scalping, traders should concentrate on one currency pair or position at a time.
When trading many positions at once, it can be difficult to keep track of the technical charts effectively, and attention is more likely to be lost.
We want full focus when scalping volatile pairs because of how quick the price action can be.
Divided attention will most likely lead to a loss.
#Scalping Tip 2 – Target Volatitily and Liquidity
Trade currency pairings with the highest volatility and liquidity. Scalping is a fast-paced activity.
Meaning traders require liquidity to quickly enter and exit the market.
#Scalping Tip 3 – Have the Right Mindset
Scalpers typically have a temperament or mentality that matches the high-risk nature of Scalping.
Scalping requires focus, analytical skills, and a fair amount of patience.
Without these qualities, it’s hard to break even or make a profit.
The Best Indicators for Scalping in Forex
Parabolic SAR For Scalping
Parabolic Sar is an important indicator for scalper traders. I already mentioned how trend trading is the best for scalping, well this tool helps you read trends almost accurately.
Characterized by small formations of dots, the parabolic SAR typically reads a trend or trend reversal by forming dots right below or above the next price movement.
Looking at the example above, we can see that right before the trend changes, a dot appears.
This signals the beginning of a new trend or the end of another.
This Indicator is usually consistent with a trending market.
This is because in a consolidating market, this indicator gives multiple signals.
And this can be hard to understand.
Exponential Moving Averages
The Exponential moving average is a perfect tool for spotting quick price changes in a trending market.
The Exponential moving averages predict price action when it crosses the market data.
If the Exponential moving average crosses the trend, it’s a signal for an up or downtrend.
I created a separate article that explains completely how to use this indicator while scalping in forex.
Advantages of Scalping
1. Constant opportunities
Scalping gives you the real chance to make a considerable profit. This is because of how many times the market moves.
While scalping, a good trader can win on almost all price changes in both directions, on the contrary, in intraday trading, a significant part of the profit is “lost” due to setbacks and corrections.
Besides, it doesn’t always depend on the trend.
2. Improved Expertise:
Once you’re good at scalping in forex, your overall trading expertise deepens.
Once you can scale the rigors of minute-to-minute trading, your overall decision-making on larger timeframes becomes better.
Disadvantages of Scalping
- Market noise: In short term periods, random market fluctuations with sometimes no real meaning happen a lot.
2. Limited selection: Scalping is limited to liquid currency pairings with modest volatility. Exotic currency pairs aren’t recommended. Because of huge spreads and lack of volatility.
3. Emotional stress: The necessity to pay attention to the finer points of a situation. You must always maintain control over your activities and make timely judgments. Traders eventually become emotionally exhausted and lose sight of their goals.
Although this has led to the creation of trading bots.
Scalping generally requires at least some level of expertise. Nonetheless, beginner traders with strong fundamentals can dabble into this strategy and see returns.
Scalpers can trade anywhere near 1 – 15 minute timeframes. Although most scalpers prefer to scalp on 1-minute timeframes.
Basically, ANY currency pair with high volatility and tight spread is more than suitable to scalp with.
Scalpers execute from 50 to 100 trades per day. Beginner scalpers should aim for a number relatively lower than that and work their way up.
Summary – What is Scalping in Forex?
Scalping is forex can be highly profitable, others say it is very risky.
In any case, before trading with a scalping, any scalping strategy needs to be practiced and enhanced in a demo account.
Scalping can be very profitable for traders who decide to use it as a primary strategy, or even those who use it to supplement other types of trading.
Adhering to the strict exit strategy is the key to making small profits compound into large gains.