Scalping is a forex trading strategy that targets small-margin returns, with positions typically remaining open for less than five minutes.
In this guide, I discuss some of the best forex scalping strategies that can be implemented in a risk-averse way for more experienced forex traders.
Also Consider: My guide to the best forex brokers March 2023
- Key Takeaways
- What does scalping mean in forex?
- Why use forex scalping strategies?
- What’s the best forex scalping strategy?
- Necessary inputs for scalping
- The best forex currency pairs for scalping
- Tips for how to scalp forex
- How to choose a forex scalping broker
- Forex Scalping Strategies FAQs
My key takeaways when looking at the best forex scalping strategies would include the following:
- Focus on short time frames (1-5 minutes)
- Look for quick trades with small profits
- Use technical indicators (e.g. Moving Averages, Bollinger Bands)
- Have strict risk management plan
- Trade with a reliable broker
- Stay up-to-date with market news and events.
By incorporating these key takeaways into your forex scalping strategy, you can improve your chances of success in the forex market.
What does scalping mean in forex?
Scalping is an ultra-short term strategy in forex that will see positions opened and closed in the space of a few minutes.
With that being said, this also means that the risks involved when adopting a scalping trading strategy are much lower. Furthermore, although scalpers target small profit margins, seasoned traders will regularly enter dozens of positions each and every day.
Scalpers will generally utilize leverage too, with the aim of amplifying small margins into larger gains. I should, however, make it clear that if you are only just starting out in the world of forex scalping, leverage should be avoided.
Nonetheless, I should also stress that scalping forex on a manual basis is no easy feat. Unlike other forms of forex trading, time will not be on your side. That is to say, you will need to utilize the 1-minute chart timeframe and make ultra-fast decisions.
This is why the best forex scalping strategies are typically those that are backed by automated software.
The software will autonomously detect potential trade opportunities through the deployment of multiple technical indicators at any given time, and subsequently place orders accordingly.
It goes without saying that investors with access to proven forex scalping software will keep their secret sauce to themselves.
Why use forex scalping strategies?
Scalping is one of the most popular forex strategies for risk-averse traders.
The reason for this is that positions only remain open for several minutes, which reduces the risk of losing a large sum of capital on any single trade.
After all, even minor currency pairs will only rise or fall by a few basis points in the space of five minutes – which is the average duration when scalping. With that being said, it takes a skilled trader to be able to predict the future direction of a forex pair in the minutes that are to follow.
This is why it is crucial to have a firm grasp of forex scalping strategies. All of the strategies that I discuss in this guide can be approached with risk management in mind.
With that said, when backtesting any of the discussed scalping strategies, this is best done through a demo trading account that mirrors live forex market conditions. Only when you are confident that the strategy is viable, should you then consider scalping with real capital.
What’s the best forex scalping strategy?
In this section, I reveal what I consider to be some of the best forex scalping strategies for beginners and experienced traders alike.
Moving averages for scalping forex
The first forex scalping strategy that I will discuss is centered on a core technical indicator – simple moving averages (SMAs).
Put simply, this indicator informs us of historical price averages over a specified timeframe. While day traders usually opt for 15-minute charts when utilizing the SMA, in the case of scalping, this is much shorter at just 1-minute intervals.
There are many variations to this scalping strategy, but beginners may feel more comfortable opting for the 5, 8, and 13-bar SMAs. The core objective here is to assess the relationship between 1-minute SMAs with that of the current price.
Scalpers can enter a buy/sell position accordingly once the SMA has been identified, alongside suitable stop-loss and take-profit orders.
Bollinger Band scalping
Bollinger Bands are heavily utilized by both day traders and scalpers alike. This indicator reveals the real-time correlation between volatility and price, not to mention whether a particular forex pair may be in overbought or oversold conditions.
When opting for this forex scaling strategy, entry into the market will depend on whether a long or short position is being undertaken.
Buy (Long) Entry Point
- Forex scalpers will generally only go long on a forex pair if the Bollinger Bands reading is flat.
- For confirmation, evaluate whether the currency pairs decline down to the lower end of the reading.
- If this is the case, a long position can be entered by forex traders.
- Risk-averse scalpers will generally set a take-profit order in the upper region of the Bollinger Bands reading.
Sell (Short) Entry Point
- Just like a long position, going short should only be considered if there is a flat reading on the Bollinger Bands indicator.
- In this case, if the price begins to inch toward the upper region, a short order can be deployed.
- A sensible take-profit point would be in and around the lower region of the Bollinger Bands reading.
The breakout strategy
The breakout strategy is especially useful when scalping forex. In its most basic form, a forex pair ‘breaks out’ when it deviates from a prolonged consolidation period.
For instance, if EUR/USD moves above an identified resistance level after trading within a tight range, this would be viewed as a breakout.
Breakouts can be identified not only via support and resistance levels, but several other indicators too – including pivot points.
Either way, this strategy is particularly risk-averse, as the forex scalper can enter suitable entry and exit positions in both directions – in preparation for an impending breakout.
For instance, if the forex pair breaks out to the downside, then a sell order will be executed just below the identified support level.
If this is a so-called ‘fake out’, then the stop-loss will be triggered just above the level of support. Just remember, breakouts will often result in a more prolonged trajectory to the upside or downside, so a trailing stop loss can be of great use.
This will enable the scalper to keep with momentum for as long as the trend continues.
Scalp trading using the stochastic oscillator
The stochastic oscillator is a useful technical indicator for evaluating immediate momentum changes.
As such, this is one of the best forex scalping strategies for assessing whether a forex pair is potentially moving into overbought or oversold territory.
- The stochastic oscillator provides a reading of between 0 and 100
- If the reading sits at 20 or under, the stochastic oscillator suggests that the respective forex pair is oversold
- If the reading sits at 80 or above, the stochastic oscillator suggests that the respective forex pair is overbought
If the forex pair is overbought, then this means that an impending reversal could be on the cards. In turn, forex scalpers will prepare a suitable short order.
On the other hand, if the fair pair is oversold, the scalper will elect to go long with the view of catching the momentum reversal.
Scalp trading using the parabolic SAR indicator
The forex scaling strategies that I have discussed so far have largely focused on identifying immediate trend directions.
In the case of the parabolic SAR (Stop and Reverse) indicator, however, the objective is to evaluate when an ongoing trend is likely to end.
When deploying this technical indicator, dots will be placed on the scalper’s charting screen.
Dots placed above the candlestick region will indicate that the respective trend is bullish – and vice versa.
From an entry perspective, the scalper will place a long order when the dots are below the current price of the forex pair.
And if the dots are above the current price, then the scalper will enter a short order.
Forex RSI scalping
There is often a misconception that the RSI (Relative Strength Index) is much the same as the previously discussed stochastic oscillator.
On the one hand, both indicators enable traders to identify overbought and oversold conditions. However, there is a difference in the speed at which each indicator moves between overbought and oversold readings.
The stochastic oscillator, for example, is ideal for scalping, as the indicator moves at a rapid pace. The RSI, however, moves at a much slower pace, meaning that it is rarely utilized by seasoned scalpers.
Trend trading scalping strategy
Trend trading is a common strategy utilized by many forex traders. Not only scalpers, but swing and day traders too.
The overarching concept is that traders will attempt to take advantage of identified trends that are already in the making.
- For instance, on the 1-minute chart, a scalper will evaluate forex pairs that are generating higher highs and higher lows, which indicates an upward trend.
- Lower highs and lower lows, on the other hand, would indicate a downward trend
It is, however, important for the scalper to deploy various technical indicators for confirmation on whether a trend is valid. This often involves support and resistance levels, in addition to moving averages.
Necessary inputs for scalping
I found that forex scalping is a strategy best utilized via proven automated software that has been thoroughly backtested in live market conditions
If, however, you intend on proceeding with a manual forex scalping strategy, there are generally three core factors to take into account when setting up your trading dashboard.
Once you have decided on the best forex scalping strategy for your skillset and trading goals, you will need to ensure that your chosen broker offers 1-minute charts.
This is because scalping positions will average a trade duration of just five minutes.
As such, your analysis process will need to explore trends and potential reversals on a minute-by-minute basis.
Make no mistake about it – to stand the best chance possible of making consistent gains in the forex market, scalpers need to have access to ultra-fast execution speeds.
- This is the speed at which your chosen broker executes orders.
- After all, if you are entering a position manually, you will need the order executed as soon as the limit price has been triggered, to ensure that you are able to capitalize on your findings.
I find that most brokers in the forex market will publish their average execution speeds, and this will be measured in milliseconds (ms).
And of course, without having access to a suite of technical indicators, you won’t be able to scalp in an effective way.
Some brokers offer in-house technical indicators via their own native trading platform.
With that said, scalping requires high-level tools in addition to just technical indicators, so it might be best to opt for a broker that supports specialist third-party platforms, such as MetaTrader or TradingView.
The best forex currency pairs for scalping
Another important consideration to make when learning about forex scalping is the best major currency pairs for this particular strategy.
First and foremost, as scalping seeks to capitalize on tiny price movements, it is imperative to stick with major currency pairs that attract large levels of liquidity.
This will ensure that you avoid slippage when entering buy and sell orders. Even a minute amount of slippage can result in the scalping position becoming unviable.
In this regard, some of the best forex pairs for scalping include EUR/USD and GBP/USD. In addition to this, it is also wise to trade pairs that benefit from the highest volume during your respective time zone.
For example, when trading EUR/USD, brokerage houses in both New York and London are simultaneously open between 8 am and 11 am (EST), meaning plenty of volume and liquidity.
Tips for how to scalp forex
In this section of my guide, I offer some useful forex scalping tips on what to consider when learning about forex scalping for the very first time.
Start with a demo account
The most important step to take as a novice scalping trader is to practice via a demo account facility. Many forex brokers offer a free demo account to new users, which usually remains active for at least 30 days.
During this period, you will have the freedom to practice as many forex scalping strategies as you see fit. You will be utilizing ‘paper funds’, so there is zero risk involved.
Crucially, however, it is important to ensure that the demo account facility mirrors the forex market in real-time. Otherwise, your forex scalping endeavors will not reflect actual market conditions.
Furthermore, you will also need to ensure that the demo account offers a full suite of technical indicators, as well as 1-minute chart timeframes.
Master your chosen scalping strategy
As you begin to get more comfortable with scalping via a demo account, you will likely find that some strategies are more suitable for your skill set than others.
Rather than attempting to utilize multiple scalping strategies, it is wise to specialize in at least one scalping forex strategy.
In doing so, you will give yourself the best chance possible of becoming proficient in the respective strategy.
Niche down to specific currency pairs
In addition to mastering your preferred scalping strategy, it is also a good idea to niche down to a small selection of currency pairs.
First, make sure that you only opt for major currency pairs – due to the enhanced liquidity and tight spreads on offer.
Next, as I noted earlier, it is best to opt for currency pairs that are actively traded during your preferred time zone.
How to choose a forex scalping broker
Before embarking on a forex scalping strategy, you will need to ensure that a suitable broker is chosen.
Some of the key factors to look at in this regard are as follows:
- Spreads: Scalping is all about capitalizing on quick but small forex price movements. As such, ensure that your chosen broker offers tight spreads. This will minimize slippage and reduce your trading costs.
- Commissions: Scalping also requires access to low commissions to ensure that the process is viable. Some brokers offer 0% commission trading, but usually at a cost of wider spreads.
- Execution: As noted earlier, you should also assess the average execution speed of your chosen forex broker.
- Tools: You will also need to ensure that your broker offers access to all required technical indicators and any other tools that will aid your scalping strategy.
In summary, I have discussed some of the most popular forex scalping strategies utilized by both beginners and trading pros.
Although this particular strategy can take many years to truly master, becoming proficient in scalping trading strategies will open up forex trading scalping strategies and opportunities around the clock.
If you’re a complete beginner in this field, I would consider starting off with a risk-free demo account facility that mirrors live forex market conditions.
Forex Scalping Strategies FAQs
Is forex scalping profitable?
Yes forex scalping can be profitable, like any trading strategy, forex scalping trading can be profitable in the long run. However, this particular forex strategy is best utilized by traders that have a solid grasp of technical indicators like the RSI and Bollinger Bands.
What’s the best forex scalping strategy?
I found that popular strategies utilized by successful scalpers are centered around technical indicators, such as simple moving averages, Bollinger Bands, RSI, and stochastic oscillators.
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