What is Forex Scalping Strategy
You’ve probably heard about the forex scalping strategy, but you don’t understand how it works. Scalping is a trading strategy that specializes in making profits from small price changes in the forex market. Thus, it involves making high volumes of small gains.
Scalpers can buy a currency pair and sell it after holding the position for a few seconds or minutes. Then, they will repeat the procedure throughout the day to gain small but frequent returns. In other words, scalpers rely on price fluctuations to earn profits.
This guide explores the basics of the scalping strategy in the forex market. First, you will get to know what scalping is and how it works. Then, you’ll learn the different scalping tips and strategies to help scalpers make more profits on the forex market.
Scalping Forex Strategy: What It Means
Scalping is the short-term trading of currency pairs based on real-time analysis. The primary objective of scalping is to make profits by buying and selling currencies and holding them for a short period, then closing them to earn a small profit.
Scalpers place several trades throughout the day through a system based on signals generated from technical analysis and charting tools. The charting tools comprise many signals that make buy-or-sell decisions when pointing in the same direction.
Besides the automated trading system, scalping can also be manual. With the manual system, a trader sits at the computer screen to look for signals then decide whether to buy or sell. Unfortunately, the manual scalping method is time-consuming and costly.
The scalping strategy specializes in making profits from small price movements through buying and reselling of currencies. For that reason, a trader must devise a strict exit strategy since one big loss could lose the multiple small gains they worked to get.
Unlike a day trader, scalpers open a position then close it again within the current trading session. They never carry a position to another trading period nor do they hold it overnight. A day trader, on the other hand, takes a position once or twice a day.
What sets scalping apart from other trading activities is that the traders have to trade multiple times during a trading session. As a result, they usually trade-off tick charts and 1-minute charts. On the other hand, a day trader can trade off 5- and 30-minute charts.
Some scalpers may try to take full advantage of high-velocity moves happening during economic news and data release. Such news can be employment statistics reports or GDP figures. In other words, they look for anything relevant to their economic agenda.
Scalping trading can work with or without indicators. The technique that doesn’t involve the indicators is referred to as price action trading. Conversely, the methods that rely on indicators use scalping generated by the software to spot entry and exit points.
Price Action Scalping in the Forex Market
As mentioned earlier, the price action trading strategy works without indicators. Instead, scalpers analyze the elements of technical analysis to focus on price only. Then, they observe the movements in price through candlestick charts.
In simple terms, the price action strategy allows traders to study the market and make trading decisions depending on the recent and accurate price movements. The scalpers don’t rely solely on technical indicators, rendering their decisions subjective.
By performing in-depth analysis for price movements, scalpers can make informed decisions depending on trend continuations. They will scalp a trade if the target spot has a good risk-reward ratio. Thankfully, there are many tools for price action trading.
Unfortunately, scalpers don’t consider the external factors that could impact the price of a currency pair. For example, some of the key economic indicators that can affect the price of currency pairs are inflation, trade status, supply and demand, and interest rates.
Forex Scalping Signals from Indicators
Unlike price action trading, this strategy involves trading signals obtained from software and technical indicators to identify a trade’s entry and exit points. The forex scalping signals are crucial due to the fast-paced speed of trading on the forex market.
Both short-term and long-term signal providers on the forex market often target several pips (percentage in point) to help scalpers identify potential opportunities. They do that when the forex market is particularly volatile or quiet and the liquidity is less.
Notably, most traders prefer using a forex scalping system that provides them with total exposure to pips, graphs, and technical forex indicators. The good news is that forex scalping signals take into account the economic events or forex scalping indicators.
Indicators for Forex Scalping Signals
Now that you understand how forex scalping signals work, what are some of the best indicators for forex scalping? Here are the options you’ll find on most trading platforms.
- Bollinger Band Indicators: A Bollinger Band chart can show the volatility of a forex market, which is beneficial to scalpers whose trades are usually rapid. This indicator is effective for currency pairs with low spreads on the forex market.
- Relative Strength Index (RSI): The RSI indicator is a momentum oscillator that can forecast the future direction of the forex market within a particular period. Scalpers can adjust the default settings to monitor short-term price changes.
Forex Scalping Tips and Strategies
The following tips and ideas will help you make the most out of your scalping efforts.
- Monitoring multiple trade positions simultaneously can result in losses. So, focus on one trade position or currency pair at a time to boost your chances of winning.
- Consider trading only the currency pairs with the highest volume and liquidity. As a result, that will allow you to dip in and out of the forex market very quickly.
- Build your patience, focus, concentration, and analytical skills to help you make informed decisions. That way, you’ll likely make wise choices to earn profits.
The forex market is one of the most extensive and liquid markets, calling for a viable strategy to trade on it. In that case, retail forex traders who want to earn profits from the small price movements on the forex market consider scalping as a viable strategy. As a scalper, use a trading platform that allows you to buy and sell currency pairs quickly.