Before determining which trading methods to employ, forex traders typically take the time to research the market. This is important since it decides whether or not the trader will turn a profit. Since forex scalping offers quick earnings, many traders find it to be enjoyable. However, in order to maximise profits, traders must identify the best forex scalping strategies.
Finding the best forex scalping strategy might be difficult, especially if you are just starting out. This post is meant to help you understand some of the top forex scalping tactics and why you should apply them.
What is forex scalping?
Scalping is a trading strategy that makes money from slight price movements by taking profits rapidly after a trade is profitable. All forms of trading require discipline, but because scalping involves such a high volume of trades with relatively tiny average gains, it requires a strict adherence to one’s trading strategy to prevent one huge loss from wiping out a string of profitable deals.
In order to take advantage of profits when they arise, scalpers will take numerous tiny profits and not run any winners. Instead of focusing on a small number of profitable transactions with significant winning sizes, a successful trading strategy should focus on a vast number of winners.
Scalping is based on the premise of lesser exposure risk because each trade actually spends very little time in the market, reducing the possibility that a negative occurrence will result in a significant move. Furthermore, it holds that smaller moves are more common than larger ones and that it is simpler to obtain smaller moves than larger ones.
Best scalping strategies
Is scalping forex profitable? Forex scalping traders can benefit from a variety of strategies, but it can take some time to practice and master them. The following scalping strategies can help you to get started as they are easy to understand and use indicators that are readily available in most forex trading platforms.
Stochastic oscillator scalping strategy
A stochastic oscillator can be used for scalping the forex market. The term stochastic refers to the present price’s position in relation to its recent price range. A stochastic seeks to identify probable turning moments by evaluating the price of a securities in relation to its most recent range.
A trending market, or one that is moving up or down consistently, is what scaling with the aid of such an oscillator seeks to catch movements in. Prior to a turning point, prices frequently close close to the extremes of the most recent range. You can see in the chart below that there were 2 good scalping trades when the stochastic crossover happened near the exteme zones.
Moving average scalping strategy
Using moving averages, typically with two somewhat short-term and one considerably longer to illustrate the trend, is another technique. It’s critical to keep in mind that these transactions follow the trend and that our goal isn’t to try to anticipate every move. As with all forms of scalping, effective risk management is crucial, and stops are crucial to prevent bigger losses that quickly wipe out numerous smaller profits.
You can see in the chart below that there was a good scalping trade short on the EUR/USD 5-minute chart. The 14-moving average had crossed below the 21-moving average. Price was also below the long term 200 period moving average. There was an opportunity to catch some pips on this move in line with the overall trend.
Parabolic SAR scalping strategy
The parabolic SAR is an indicator that identifies a market’s direction of movement and tries to indicate entry and exit points. SAR, or “stop and reverse,” is an acronym. An array of dots above or below the price bars makes up the indication. It is bullish to place a dot below the price and bearish to place one above. A shift in the dots’ positions indicates that a trend is changing.
You can see in the EUR/USD 5-minute chart below that there were a couple of good scalping trades using the Parabolic SAR. We could have used candlestick formations to time the entry and would have been able to catch a decent number of pips with a tight stop loss using this scalping strategy.
RSI scalping strategy
The RSI can be used by traders to identify entry points that correspond to the current trend. When the RSI falls below 30 and subsequently rises above this line, a potential entry point is generated because dips in the trend are to be bought. However, when the RSI reaches 70 and subsequently starts to fall within a downtrend, an opportunity to “sell the rise” is presented.
There is a good scalping trade that I have highlighted in the EUR/USD 5-minute chart below. You can see that the RSI is above 70 and in the overbought zone which suggested that the price may be falling soon. The entry was confirmed with a bearish candlestick pattern which would have enabled us to catch a good move downwards with a tight stop loss.
Forex scalping pros & cons
Scalping is extremely time-consuming and demands a trader to have iron discipline. Scalping necessitates a trader’s complete focus, but longer-term time frames and smaller sizes allow traders to leave their platforms because there are fewer potential entry and they can be watched from a distance.
Because potential entry points can come and vanish extremely fast, a trader must stay anchored to their platform. Scalping may not be the best course of action for people with day jobs and other responsibilities. Longer-term transactions with higher profit targets would be more appropriate.
Scalping is a tricky tactic to use effectively. It demands a lot of trades over time, which is one of the main causes. The majority of the research on this topic suggests that more frequent traders simply lose money faster and have a negative equity curve. Instead, most traders would be more successful, spend less time trading, and even experience less stress if they focused on long-term deals rather than scalping.
Scalping calls for quick reactions to market changes and the capacity to abandon a deal if the right opportunity is missed. The main causes of scalpers’ frequent failure are “chasing” trades and a lack of stop loss discipline. Although it may seem appealing to simply stay in the market for a brief time, there is a great likelihood that you will get stopped out on a sudden move that reverses rapidly.
The dedication and patience required for trading are rewarded. Although there are some scalpers that exhibit these traits, they are few in number. Most traders do better with a longer-term perspective, more manageable position sizes, and a slower rate of activity.
Is forex scalping profitable?
Scalping the forex market may be very successful, but it takes a lot of time, effort, and perseverance. Risk management and discipline are crucial to your success because the profit margins are so slim on each trade, a single mistake might negate the advantages from numerous profitable trades.
Is forex scalping for me?
Due to the size and liquidity of the forex market, traders can readily enter and exit trading positions. For individuals who detest waiting for a trade to close, scalping is a decent option. Positions are often kept for a very short period of time, which reduces the possibility of reversals that could damage a trading position.
Which timeframe is best for scalping?
The typical chart timeframe for scalpers is between one and 15-minutes. Scalpers, however, frequently prefer the 1-minute and 5-minute charts. I personally find that there can be too much noise on these chart timeframes. Granted, there will be more trading signals, but you can still scalp on the higher timeframe charts such as the 1-hour charts and above. At the end of the day, it depends on your trading style and how much time you have available to analyse the charts.
Conclusion: what is the best forex scalping strategy?
Scalping is a trading strategy that entails spotting minute price fluctuations in the forex market and swiftly buying and selling large amounts of different currencies. Scalpers attempt to accumulate a string of minor wins that add up to a respectable day’s earnings by repeatedly employing this method over time. There is no “best forex scalping strategy” simply due to the fact that it can depend on numerous factors including the traders discipline, emotions and money management.
I have seen the exact same forex scalping strategies give a completely different set of results simply due to the stop loss and take profit being used. Not to mention, scalping the forex market successfully requires a forex broker with tight spreads, low commission fees and rapid trade execution speeds. I would be looking to use an ECN forex broker such as IC Markets as they have a deep liquidity pool and some of the best trading conditions for manual and automated trading systems.
Whatever forex scalping system you choose, it can be a good idea to start on a demo account to begin with. That way you do not need to take any unnecessary risks and can practice various different scalping strategies to see which works best for you.
Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading! Read more about me.