What is FX scalping?
When it comes to Forex, scalping generally refers to making a large number of trades that produce small profits individually.
When using a scalping strategy, traders usually expect to gain between 5 to 10 pips per trade. Employing leverage could worsen losses but it can also yield significant profits depending on the leverage.
So is scalping suitable for you?
Deciding whether Forex scalping strategies are suitable for you, will depend significantly on how much time you are willing to put in to trading. Scalping the Forex market requires constant analysis and the placement of multiple orders, which can be as demanding as a full-time job.In addition, there are only a few hours a day when you can scalp currencies. After availability, the next most important thing is being able to think on the fly. For a scalping Forex strategy to succeed, you must quickly predict where the market will go and then open and close positions within a matter of seconds.
If you are just getting started with scalping, open up a demo account and try your hand at making a few market predictions to see how well you do. When making these forecasts, keep in mind that herd psychology is integral to market movements.
A perfect example is the sharp appreciation that certain currencies enjoyed amid China’s expansion in the early 2000s. During the first decade of this millennium, both the Australian Dollar (AUD) and Canadian Dollar (CAD) surged close to 40% against the US Dollar.
Australia and Canada are commodity exporters, which is why their currencies thrive when China enjoys robust growth. As a result, some Forex traders take long positions in the AUD and/or CAD when China’s economy is expanding rapidly.
Aside from predicting market direction, investors interested in Forex scalping strategies must be capable of accepting losses. While your main task is generating more profitable positions than losing ones, you must know how to exit trades when they aren’t working out.
If you still think Forex scalping is for you, keeping reading to learn about what I consider the best Forex scalping strategy and some useful scalping techniques.
The 1-minute scalping strategy
The basic idea behind scalping is opening a large number of trades that usually last either seconds or minutes.
However, some scalping strategies developed by professional traders have grown in popularity. For example, Paul Rotter placed buy and sell orders simultaneously and then used specific events in the order book to make short-term trading decisions.
Rotter traded up to one million contracts a day and was able to develop a legendary reputation in certain circles. Amid this success, his techniques have inspired many others. While studying well-known strategies can be helpful, they should form the building blocks of your own unique setup.
The 1 minute FX scalping strategy is a simple strategy for beginners, that has gained popularity by enabling high trading frequency.
How does this strategy work? For starters, set your chart time frame to one minute. Now make sure these two default MetaTrader 4 indicators are applied to your chart:
Exponential Moving Average (EMA) with the periods of 100 and 50
Stochastic with periods of 5, 3 and 3.
You can also give your EMA lines different colours, so you can easily tell apart.
Now you have applied the indicators and your chart looks clear, let’s review the signals required for opening short and long positions using this simple Forex scalping technique.
Any time a 50 EMA indicator surpasses a 100 EMA indicator, be ready to open a long order.
If the price at which you plan to fill the order is close to the EMA indicators and Stochastic rises above the 20 level, open a long position.
To determine when to make a short order, use the same strategy indicators in reverse.
The 50 EMA indicator should be below EMA 100 and the spot rate should be close to these lines.
The Stochastic should fall below the 80 level.
While you can use this Forex scalping strategy with any currency pair, it might be easier to use it with major currency pairs because they have the lowest available spreads. In addition, this approach might be most effective during high volatility trading sessions, which are usually New York closing and London opening times.
Now let’s review some scalping techniques that can enhance your scalping strategy.
Forex scalping techniques
One scalping technique involves comparing your primary time frame for trading with a second chart containing a different time frame.
For example, if you use a 1 minute time frame to scalp currency pairs, you could consult a 5 minute chart to check any signals that come up. In addition, you can always consider using additional indicators.
Another technique you might want to make mandatory for scalping is attaching a stop-loss to every position you open. A stop-loss eliminates your risk of generating significant losses in short order.
Doing so is especially important when your Forex scalping methods include more than one currency pair. Technological resources can also enhance your trading.
To expedite your order placement, use the 1-click trading tool available with MetaTrader 4. With Admiral Markets, you can access an enhanced version of the 1 click trading terminal via MetaTrader 4 Supreme Edition.
Finally, by automating your scalping strategy, you can save significant time and energy. However, strategies must be developed and then improved over time, and you should only automate them after they have consistently performed well over a reasonable time frame.
If you use FX scalping strategies correctly, they can be rewarding. However, they can also put your wits, nerves and analytical abilities to the test. To find out whether this style of trading suits you, I suggest you first practice scalping with an Admiral Markets demo account.