Forex Scalping - Journey to Success

Forex Scalping is a method of trading that attempts to make a profit out of small price movements between assets within the forex market. Therefore, scalping forex requires traders to buy or sell a foreign currency pair, such as the EUR/USD, and then hold the position for a short amount of time, hoping to generate a small profit. Forex Scalpers will then repeat this process to gain frequent returns throughout the day, taking advantage of price fluctuations of each currency pair. These trades can last for either seconds or minutes, but are never carried overnight.

Forex Scalpers usually aim to scalp between 5-10 pips from each position, aiming to make a more significant profit by the end of the day.

Price Action based Forex Scalping

Price action forex trading is a technique that works without an indicator. Instead, forex scalpers analyse elements of technical analysis, focusing on price only. This is observed through candlestick charts, using support and resistance levels and trendlines to decipher the same information that they would extract from a technical indicator. By conducting an in-depth analysis of price, traders can then make an informed decision based on trend continuations and will only scalp a trade if the target has the appropriate risk-reward ratio.

Price action scalping ignores all elements of fundamental analysis in favour of a technical approach, and these types of traders do not take into account other external factors that could affect the price of a currency pair. For example, some key economic indicators that impact the price of foreign currencies include inflation, economic growth, supply and demand, trade status, interest rates and account balance.

Forex Scalping Indicators

Bollinger Band Scalping

Bollinger Band chart is effective at showing the volatility of the forex market, which is useful for scalpers as their trades tend to be so rapid, usually within a maximum of 5 minutes for each position. Bollinger Band scalping is particularly effective forex scalping indicator for currency pairs with low spreads in the forex market, as these are the least volatile and if executed correctly, can gain the forex scalper multiple profits at once. These include a mix of major and minor currency pairs such as the EUR/USD, GBP/USD and EUR/JPY.

Moving Averages Scalping

Some of the most commonly used forex indicators for scalping are the simple moving average (SMA) and the exponential moving average (EMA). These can be used to represent short-term variance in price trends of a currency. A moving average graph is one of the most frequently used forex scalping indicators by professionals through its ability to spot changes more rapidly than others.

RSI Scalping

Relative Strength Index (RSI) is a momentum oscillator that predicts the future direction of the forex market over a period of time. Short-term traders, such as day traders and scalpers, can shorten the default settings of the RSI to monitor just minutes at a time, in order the best entry and exit points. Measuring momentum is useful within the forex market for traders to find a suitable strategy for the current environment.

Pro Forex Scalping Tips

When scalping, traders should focus on one currency pair or position at a time to give them a better chance of success. When trading multiple positions at the same time, it can be difficult to properly monitor the technical charts and focus is more often lost.

It is advisable to only trade currency pairs where both liquidity and volume are highest. Scalping is very fast-paced and therefore major currency pairs need liquidity to enable the trader to dip in and out of the market at high speed.

Scalpers often have a specific temperament or personality that reflects the risky method of trading. Scalping requires concentration, analytical skills and a decent amount of patience, allowing scalpers to make hasty decisions with the hope of making a profit.

Is forex scalping profitable?

Forex market can be volatile and instead of showing small price fluctuations, it can occasionally collapse or change direction entirely. This requires the scalper to think with immediate effect on how to ensure that the position does not incur too many losses, and that the subsequent trades make up for any losses with greater profits. Other risks of scalping include entering and exiting the trade too late. Volatile price movements between currency pairs are frequent and if the market starts going against your open position, it can be difficult to close the trade quickly enough before losing capital. The use of a high amount of leverage is also very risky. Forex margins can help to boost profits if scalpers are successful, however, they can also magnify losses if the trades are poorly executed.

The advantage of a scalper’s concentration and personality means that they should be able to spot these changes straight away and close their position in order to avoid losses. The longer the position is held for, the more risk of prices moving outside the scalper’s betting range. Therefore, the majority of scalpers usually stick with the tighter currency spreads and not make too many bold choices in order to minimise risk. A scalping strategy is not advised for beginner traders, due to the level of experience, concentration and knowledge required of the forex market. There is a much higher likelihood of failing positions than of winning positions in these circumstances.

Putting into place stop loss orders when currency trading in such volatile conditions can help a trader more effectively managed their risk and losses. When it comes to scalping, this allows traders to set a specific price at which their positions will close out automatically if the market goes in the opposite direction. Given that a scalp trade only lasts a few minutes at most, this prevents the trader from holding onto a sinking position.