Forex Scalping Strategy Explained – Ins and Outs

The Forex scalping strategy is one of the popular strategies in Forex trading, that allows traders to get small winnings from the price changes of currencies. The Forex market is one of the largest markets around the world, where there are numerous experienced traders. This means, that you need to have some strategy to make successful trades. The scalping strategy is one of those, that provides you with the opportunity to acquire earnings.

The scalping strategy is the type of trade, which lasts for minutes, on average from 1 to 15 minutes. The main idea of the scalping strategy is that you need to find those currency pairs, that are changing rapidly and allows you to gain pips in a short time period through scalping the Forex market. Usually, the pips you gain from the scalping strategy are defined as one or two. This kind of gains may seem at first sight don’t satisfy the traders, who are oriented on the long term trades and want to gain money through large trades, however, through the daily trading and the scalping strategy they can aggregate profitable money gains. It should be noted, that choice of the broker means a lot. You need to consider that certain brokers are having dealing desks. Through the dealing desks, you may get a rejection for opening and closing your positions. While the FX scalping method requires opening and close your positions frequently during the trading time, the dealing desks may be the hindering thing and won’t allow you to trade through the scalping strategy.

What’s more, traders who are using the scalping strategy, mostly are provided with the technical indicators, including the charts, which show the price movements for certain currencies and Bollinger Bands. All of them are the additional features to make your scalping strategy more successful and profit-oriented. While using the scalping strategy, some traders prefer to use the Forex robot, which allows them to implement trading processes in an automated way. However, some traders, in contrast, prefer to use methods of scalping on their own. It also worth noting, even though, that using the scalping strategy requires a lot of time, many traders are refusing to use stop/loss orders and conduct trade-related processes manually.

In this article, you’ll get more detailed information about the scalping strategy in Forex trading, how it works, what are its benefits, and what are disadvantages you need to consider, until starting the use of the scalping strategy.

Forex Scalping Strategy Explained in Layman’s Terms

Scalping is a form of trading, which allows traders to trade daily and more frequently. The scalping strategy’s main aim is to make small gains during a short time period and add up to large profits. In contrast with other strategies, the scalping strategy doesn’t get you big gains from a small number of trades. To get more information about the above-mentioned method let’s make the scalping strategy explained more easily.

It should be said, that through the scalping strategy trades are holding their positions for a little time, more specifically, for a few seconds or mostly, for a few minutes. Scalpers take profit early if the market moves favorably and minimize losses by closing very quickly.

As a result, scalping is a very intense form of trading that requires extra attention for maximizing the gained profits and chances of success. It requires the traders to be extremely involved in the trading process. Scalpers are mostly using several tools or deciding whether it worth scalping a certain currency pair or not. The main technical indicators, for scalpers, can be the board and chart, that shows the current changes in the currency prices and values. Through the Forex scalping indicator, traders can get more rational decisions and decide whether it worth it to close or open the position. Some traders are using the strategy, which requests from them to open a position for a certain time and close it when the trend reaches its desirable point. Unlike those traders, scalpers aren’t waiting for a long time, instead, they are opening and closing their positions and gaining pips from the price movements.

What’s important, scalpers, in most cases are trading in the highly liquid markets. The main reason beyond that is the reduced cost of speculating on small price movements and what’s more, through the market’s liquidity they can gain pip more easily. Furthermore, the main reason for choosing the liquid market for the Forex scalping system is that the liquid markets offer traders lower spreads.

It is also worth noting that there are several steps to take for the best scalping strategies. More specifically, it is defined as the seven steps. Firstly, traders need to choose the currency pairs, that have the lowest spreads. After that, it’s important to start trading with the currency pairs that are defined as volatile pairs through their volatility, scalpers can get more pips in a short time period. The third step is to get rid of trading with those brokers, that are having dealing desks. The main reason beyond that is the limitation of opening and closing the positions. One of the main steps is to use the best Forex scalping techniques and indicators, like moving averages, which show the average movements of the currency prices and values and Bollinger Bands. The next step is to trade support and resistance and finally, it needs to be executed trades manually. The implementation of trading manually supports you to get all the profitable chances and don’t miss the opportunities to gain money. For getting further information about the scalping strategy it’s important to discuss all of the above-mentioned steps in more detail.

Choose The Currency Pairs With the Lowest Spreads

As has already been mentioned above, the first step to start scalping trading is to choose those currency pairs that are characterized by the lowest spreads. The mentioned step has a crucial meaning for having one of the best Forex scalping strategies. At first, you should always remember, that scalping strategy isn’t going to gain you an amazing payout on a small number of trades. Instead, you need to stay tuned and actively start scalping the pips. The lowest spreads, in case of the worst scenario, allows you to lose a very small amount of money and minimize your costs.

What’s important, you should consider that every broker offers you the average spread on their account. Depending on the chart, which should be found on your trading account you can decide which currency pairs are going to be the best choice for trading FX. For example, imagine, that you as a trader are using a specific trading platform, which shows, that the currency pair like EUR/USD has the lowest spread. Depending on the above-mentioned FX scalping method, most likely, you’re going to start trading with the above-mentioned currency pairs, as long as, it has the highest chances of not make you lose your funds if the unexpected processes are going to take place.

Choose the Most Volatile Currency Pairs

The second step, for having a successful scalping strategy, as it’s already mentioned before is that you have to choose the currency pairs the are the most volatile. Through the currency pairs’ volatility and instability in their prices and values, you as a trader are allowed to get more gains while opening and closing your positions.

What’s important you should always remember that the FX scalping strategy is oriented on frequently opening and closing your positions. So, while volatility means rapid changes in prices and values, it can raise your chances to get more pips from the movements. Besides, the currency pairs that are characterized by lower volatility cannot get you gains, because for getting pips trader needs to wait for a long time.

Get Rid of the Dealing Desk

When you are starting trading Forex and using the scalping strategy, you should take into account the fact, that some brokers are having a dealing desk. So, what is exactly a dealing desk?

A dealing desk is a place where some of the Forex dealers or the representatives of the financial institutions sit. What’s more, those Forex brokers, that are operating in the market through the dealing desk are getting profits and money gains with the use of spreads and through providing liquidity with their customers. Depending on the mentioned information, it goes without saying, that some brokers, that are conducting processes through the dealing desk, are rejecting executing orders. While the Forex scalping system requires gaining pips through the opening and closing positions in a short time, those brokers, that are executing your orders, can hinder your trading process and lead you to a strategy that won’t be as profitable as it should be.

For your information, nowadays, there aren’t many brokers, that are using the dealing desk, which means, you can trade with scalping strategy without any additional obstacle. Besides, there are brokers, that offer their customers beneficial features like competitive spreads on the currency pairs.

Always Utilize the Moving Averages

Some of the FX scalping techniques, that lead Forex traders to successful trading, involve the use of the moving averages.  There are several types of moving averages, including Simple Moving Average and Exponential Moving Average, each of them are showing the data of the changes in the currency pairs and their prices and values. Through the above-mentioned tools, investors can define, whether it is worth trading with certain currency pairs or not or just choose the most suitable currency pairs among others and through that generate their main strategy. Even though SMA and EMA are very useful tools, they don’t guarantee you reach success while trading Forex. Instead, there are additional Forex scalping indicators on which some of the popular Forex scalping strategies can be grounded.

Use the Bollinger Bands

In the previous paragraph, it has been said, that there are some additional indicators in Forex trading for those traders who want to operate in the market. If you are a trader, who wants to use the scalping strategy in Forex trading, one of the features, among others that will help you to be a successful trader is Bollinger Bands. So, what are they and how to use them?

Bolinger Bands are showing the changes in the marketplace. More specifically, they include the lines, that are showing whether the currency prices are going down or up and what is the tendency of their price changes. Even though that this might not be one of the best Forex scalping techniques, it can be helpful and show you the general image of the remaining processes in the marketplace.

Additional Features to Utilize

For having a successful scalping strategy in Forex trading, you need to take seven steps. Among those seven the two last steps are trading support and resistance and executing trades by yourself.

So, what do trading support and resistance mean, and how to use them? Firstly, it should be said, that it has similarities with the Bollinger Bands, however, the main difference between them is that in this case, you’re not looking at the bonds. Instead, you observe the support and resistance. This is one of the simple Forex scalping strategies because, through the use of the mentioned feature, you can see whether a certain currency is strong or weak and decide whether to sell or buy it.

Why should you execute the trade-related processes by yourself and manually? The main thing is that when you are using the scalping strategy, every second and minute has a crucial and significant meaning. There are several features, like stop-loss orders, that help traders to stop their losses, or take the profits, and so on. Those traders, that aren’t using the scalping techniques in Forex trading can get a lot of benefits through the mentioned feature. However, placing the stop-loss orders can take some minutes or seconds and for FX scalping strategy, as already mentioned every moment is important. A stop-loss order, even though that prevents you from losing money, in the case of the scalping strategy, may lead you to miss the great opportunities and chances to gain bountiful pips and earn money. So, depending on the mentioned information it should be said, that the Stop-Loss order while trading with scalping strategy is useless.

What Are the Advantages and Disadvantages of Scalping?

After you get some basic information about the scalping strategy, it’s important to know what are the main advantages and disadvantages of using the mentioned trading strategy.

Firstly, it should be said, that you can get several advantages from using the above-mentioned technique. While trading Forex mostly is linked to the higher risk, scalping strategy allows you to trade with less risk. Higher risks mean that there are grown chances of losing funds. FX scalping strategies, in contrast, furnishes you with the opportunity to minimize your possible costs.

One of the main advantages, apart from trading with less risk, is the character of being non-directional. This means, that you are allowed to choose the strategy which involves operating with both top and bottom markets. Because of that, as long as the FX market is unstable, you have a risen chances of giving profits.

What’s more, the scalping strategy can be easy to use. While many strategies need long-term analysis and planning, a scalping strategy can avoid the time-extended processes. However, that doesn’t mean, you don’t need to do research. In contrast, while starting the trading process, you need to look at some of the features, charts and use the analytical tools, that are supporting you with useful information.

Even though, that at some point scalping strategy may seem to be perfect, it has drawbacks, as well. One of the main drawbacks of the scalping strategy is that gaining profits take a little longer time. As long as scalping means that you are gaining pips, a little number of pips can get you satisfactory revenue. So, you need to continue scalping daily. Apart from that, it goes without saying, that having a successful scalping strategy, requires dedicating a little longer time to the trading process.

Furthermore, it should be said, that one drawback is the cost of the transactions. Because of the scalping strategies, traders transact money in a short period of time. so, this means that the cost of the transactions is growing. In this case, one of the main remedies is to choose a trustworthy broker, that has lower commission fees.

Bottom Line

Depending on the above-discussed information, it should be said, that the scalping strategy is one of the most popular trading strategies in the Forex. Through the scalping strategy traders are allowed to earn money and gain pips from every change in the market prices. What’s more, even though that there are some drawbacks of using the scalping strategy in the trading process, there are more advantages you can get from that. The scalping strategy should be mentioned, needs good time management. Furthermore, for having a successful scalping strategy in Forex you need to take some steps, that are above-discussed, and after using them the chances of getting higher profits are highly likely.