5 Minute Forex Scalping Strategy

If you are looking to scalp the forex market for a few pips here and there, chances are you are going to want to trade on the 1-minute or 5-minute charts. This is because they present plenty of trading opportunities compared to higher timeframes where signals can be few and far between. That being said, scalping forex successfully is very difficult. You can increase your chances by using a combination of technical indicators and price action analysis which I will cover in this 5-minute forex scalping guide.

What is forex scalping?

Forex scalping is when you target a few pips per trade with a view to building up the amount of pips that you make from frequently getting in and out of trades. Scalping strategies usually target anything from 1 to 5 pips per trade, sometimes more depending on the market conditions.

Compared to day trading when you might look for 50 pips or more per trade, scalping does require a lot of time and attention, unless you are using a forex scalping EA. You would need to make 10 successful scalping trades to gain 50 pips that you could make from one successful day trade.

You might be thinking why should I stress myself out trying to scalp the forex market when I can just take a couple of trades per day and save myself the hassle. Well, I think the majority of forex traders who choose to scalp the 5-minute charts, want to try and build up their forex account as fast as possible.

They might also like that you can usually use a tighter stop loss when scalping forex, which in turn can give a greater profit potential provided they are using sensible forex money management. However, this is something that many scalpers overlook. It is not uncommon to see forex scalping strategies that have a poor risk to reward ratio.

This is because the markets can be especially noisy on the 5-minute charts which causes lots of false signals. Without a wide stop loss, scalpers can get whipsawed in and out of the market. This does not just cause losses, but also increases the trading costs as each time you trade, you will need to pay your broker a spread and possible commission fee.

I have seen 5-minute scalping strategies that have 50 pip stop losses but only target 5 pips. This means that one losing trade would wipe out 10 winning trades. This is why good money management is so important alongside proper trading discipline.

Are 5-minute charts good for trading?

In my humble opinion, using a 1-minute scalping strategy or 5-minute scalping strategy can make things very difficult for traders. I just find that there is so much market noise that it takes away from the reliability of technical indicators which can be lagging at the best of times.

I do understand that some traders have no choice because they want to try and compound their account as fast as possible, but when you consider that most retail traders make a loss, perhaps switching to higher chart timeframes such as the 1-hour and above could help to prevent this.

Think about the currency pair that you are trading as well. This is because some currency crosses can have larger spreads than others, especially exotic pairs. This can make scalping even more difficult. I like to focus on the major currency pairs such as the EUR/USD as they usually have plenty of liquidity which tends to mean tighter spreads and better execution, something that really matters when using a 5-minute forex strategy.

1-minute vs 5-minute charts for scalping

If you are looking for as many scalping signals as possible, then the 1-minute chart should present more than the 5-minute charts. However, if the 5-minute charts can give lots of false signals, the 1-minute charts give even more. Therefore, you can filter out some of the market noise on both timeframes by using a good combination of technical analysis and price action analysis. I would certainly not want to scalp the forex market with just one indicator as I feel that would lead to a poor win rate on both of these charts.

Which indicator is best for the 5-minute chart?

It depends if you are trend trading or trading reversals. I like to combine both, by looking for reversals that are inline with the overall trend. This way I can spot buy and sell opportunities that can not only present scalping trades, but also the potential to get in on some good trends. Therefore, I would consider combining trend trading systems such as the moving average crossover and an oscillator based system such as the Stochastic crossover.

5-minute forex scalping strategy

Now that we have covered some of the pros and cons of trading forex on the 5-minute charts, lets taker a look at an example strategy that can be used for scalping the 5-minute charts. It combines trend trading indicators with oscillators, price action and candlestick patterns. The only thing missing is fundamental analysis which you can do by following an economic calendar to avoid unsuitable market conditions.

I want to say that the first and most important thing to do when scalping the 5-minute chart is to identify if the currency pair is trending or ranging. Once you have established that, you can then trade accordingly. Otherwise, you could end up trading against the trend and get thrown in and out of trades.

5-minute forex scalping strategy buy signal

  • ADX main line is above 20 showing trend momentum
  • ADX +DMI is above -DMI showing an uptrend
  • MACD main line is above signal line confirming uptrend
  • Look for bullish candlestick formations
  • Stop loss can be placed at recent level of support
  • Exit could be an opposite signal

In the EUR/USD 5-minute chart below, you will see that the ADX +DMI is above the -DMI and the main line is greater than 20. This suggests upward momentum which is further confirmed by the MACD histogram being above the signal line and the zero level. There is also some MACD divergence to the upside. The entry is confirmed when price breaches the recent resistance level. The stop loss could have been just below recent support which would have been around 20 pips, which is decent when you consider this trade moved around 70 pips had we exited when the MACD crossed back over to the sell side. Alternatively, the opposite ADX crossover could also have been an exit point.

5-Minute Scalping Strategy Buy Signal
5-Minute Scalping Strategy Buy Signal

5-minute forex scalping strategy sell signal

  • ADX main line is above 20 showing trend momentum
  • ADX -DMI is above +DMI showing an uptrend
  • MACD main line is below signal line confirming downtrend
  • Look for bearish candlestick formations
  • Stop loss can be placed at recent level of resistance
  • Exit could be an opposite signal

You can see from the EUR/USD 5-minute chart below that the ADX crossover happened with the main line above 20. There is also a MACD crossover where the histogram is below the signal line which agrees with the ADX bearish outlook. There is a big engulfing bar showing that the bears have taken control and the price continues to move downwards, reaching around 50 pips. If we placed the stop loss at the recent resistance level, it would have been around 10 pips. This presented a good 1:5 risk to reward ratio.

5-Minute Scalping Strategy Sell Signal
5-Minute Scalping Strategy Sell Signal

Advantages of the 5-minute forex scalping strategy

  • Very flexible as you can combine any indicators
  • Lots of opportunity for buy and sell trades
  • Can use it on any currency pair or timeframe

Disadvantages of the 5-minute forex scalping strategy

  • Lots of chart watching and market analysis required
  • Difficult to filter out the market noise
  • Money management not always ideal

What forex brokers are best for scalping?

Because scalping the 5-minute charts usually targets a few pips per trade, the forex broker that you choose can have a huge implication on results. I have seen the exact same scalping strategy give a completely different set of results simply due to the brokers having different spreads, commissions and slippage.

For example, let’s say that your take profit is 5 pips. If your broker charges 2 pips spread, 2 pip commission and there is 1 pip slippage, you would need to make 5 pips just to break even. Therefore, the target becomes 10 pips which means the stop loss may need to be wider and cause larger losses.

IC Markets are my top choice of forex broker for scalping as they have tight spreads with ECN execution speeds and very competitive commission fees. They also have a great selection of deposit/withdrawal options and excellent support.

Conclusion: should I scalp forex on the 5-minute charts?

If you like lots of trading action and have plenty of time to spend analysing charts, then the 5-minute forex scalping strategy could be for you. Just make sure you filter out trades as much as possible due to the high number of false signals that can occur on the lower chart timeframes. Also, try to have a good risk to reward ratio where you don’t wipe out all of your gains with one bad trade.

Whilst it may seem tough to scalp the 5-minute charts, it is possible. It just requires lots of practice which is why I think it is very important that beginners start on a forex demo account to begin with. That way you can master your trading skills and build your confidence without taking any risk. Once you start seeing some success in the long-term, you can always switch over to a live account. You can get a free demo account from most forex brokers.