There are different ways of earning money in the forex market. The best one, however, is to follow a certain trading strategy. Fortunately, there is no need to reinvent the wheel: there are hundreds, if not thousands, of trading strategies. They differ depending on the time of order execution, trading instruments, types of analysis, patterns, indicators used, and so on. Scalping is one of the most popular trading strategies. Almost all traders use scalping. Some of them, Paul Rotter, for example, made tens of millions of dollars with its help. Let’s find out more about this trading strategy. Maybe it will become your key to successful trading on Forex.

Essence of scalping

Scalping is an intraday trading strategy where a trader opens many short-term trades and then closes them, fixing a minimum profit. In this case, the quantity of orders is more important than their quality.

Scalping is also called piping because it requires closing trades on small market fluctuations (1-10 pips). Scalpers are traders who trade small volumes and hold positions from 10 seconds to 5 minutes. In addition, scalping requires the use of stop-loss and take-profit orders.

Advantages of scalping:

  • Short positions reduce risks as it is easier to catch small price fluctuations.
  • There are more trading opportunities.
  • There are no swaps because trading is carried out intraday.
  • Scalping allows traders to increase their deposit quickly, but with the corresponding risks.
  • Scalping helps to understand the market better.

The drawback is that scalping requires traders to make decisions quickly and be very attentive at the same time.

Scalping trading

Scalpers trade liquid instruments in volatile markets. That is why traders often turn to popular currency pairs, stock indices, like the S&P500, DAX 30, UK 100, oil futures, gold, and sometimes cryptocurrencies (at the time of strong price movements). The most suitable time frames for scalping trading are М5–М15.

Scalping can be manual (independent) and automatic (using Expert Advisors). Scalping trading can be divided into several strategies depending on the method of analyzing market movements, time frames, and patterns.

Example

Scalping trading with 2 moving averages (MA) is the simplest and the most comprehensive scalping method suitable even for beginners. In such a case, 10-period and 20-period MAs are used. Trades are opened when there is divergence.

When MAs go down, it is a sell signal. A trade is opened when the price goes up and touches the 20-period MA, reverses and breaks the 10-period MA.

When MAs are headed upward, traders enter long positions. A breakout of the 10-period MA after a pullback from 20-period MA gives a buy signal.

Stop-loss and take-profit orders are set 10-15 pips away from the entry price. M5 is the most suitable time frame in this case.

Traders use strategies based on other indicators as well.

The most popular of them are

  • Moving Average (МА)
  • MACD
  • EMA
  • MaEv
  • Stochastic
  • Ichimoku
  • Bolinger bands
  • PMI
  • Fibonacci

Some market participants trade without any indicators, relying on the macroeconomic calendar, for example. Knowing the most important reports in the macroeconomic calendar, traders try to predict the reaction of the market to certain events. A few minutes before the release of macroeconomic data, the trader places the buy and sell orders at the level of 5-10 pips away from the current price (stop-loss – 5-10 pips, take-profit – 10-20 pips). M1 and M5 are the best time frames for tracking the price movement.

What do you need to know before choosing Forex scalping as your trading strategy?

If this type of trading suits you, it is time to choose a broker. Notably, not all brokerage firms welcome scalping. Your quick reaction, as well as low spreads, the size of commissions, and leverage, play an important role in scalping trading. The good news is that there are brokers that offer scalper trading accounts.

For instance, InstaForex offers traders various types of accounts for scalping trading with small or no commissions. Its clients also have an opportunity to install One Click Trading, an online Expert Advisor that displays the current Ask (the Buy button) and Bid (the Sell button) prices. The EA adjusts to your instruments and allows you to trade in one click.

You should remember that scalping requires a lot of concentration and instant reaction because, with its help, you can not only quickly increase your capital, but also incur serious losses. Therefore, before choosing scalping as your trading strategy, test it on a demo account. It will help you understand the market better and catch its rhythm. There are many scalping strategies, but you can find a suitable one only by trying all of them.