What Is Forex Scalping? Characteristics, Use, And More
Forex scalping is a trading method based on making many trades that remain open for a short time. In a scalping strategy, positions are kept open for a maximum of 3 to 5 minutes, with the usual duration of operations being only 1 minute.
The popularity of Forex scalping is since it is perceived as a strategy that offers security to the trader. It is mainly due to the following:
- The positions are expose to the market for a short time compared to other online trading strategies that work with longer timeframes, such as swing trading or even day trading; therefore, the risk of losses due to strong market movements is lower.
- Since a scalping strategy requires little time. The variables that the operator needs to take into account are fewer. In a scalping strategy. The spread of one or two indicators is often more critical. Therefore, it is unnecessary to pay as much attention to analyzing trends or the oscillation ranges of the currency pair’s prices.
The General Characteristics Of A Forex Scalping Strategy Are:
- Multiple operations with a short exposure to the market.
- Individual trades have a small profit, usually between 5 and 10 pips.
- The strategy’s profitability is given by the sum of the benefits of all the operations carried out.
- It is common to use leverage to increase the profit of each operation.
- A scalping strategy is usually developed when the market is at an ideal time for its development. Thus, the hours in which it has, for example, greater liquidity are chosen.
When To Use The Forex Scalping Strategy?
A scalping strategy is based on making numerous short duration trades during specific market times. According to these premises, an operator who wants to develop this type of trading must have the following qualities:
- Availability of time to be completely aware of the market during the duration of the operations
- Constancy to perform a high number of operations.
- Discipline to close operations in a concise space of time.
- Be willing to give up higher profit opportunities to secure smaller but more frequent profits.
- Ability to deal with losses.
Traders Who Employ Forex Scalping Strategies Are Characterized By Being Patient And Discipline.
A trader with a more expressive style or who seeks to obtain large profits in a short time and with few operations should not use this type of strategy.
As explained, a scalper has to be very organize about his trading decisions and what the market expects at the time. Due to the high number of operations, it is common for some functions to have losses. Still, the operator must bear in mind that the final profit of the strategy will be the result of the final sum of all the operations. Therefore, although scalping techniques are base on short-term operations, that does not mean that profits or losses are immediate.
Scalping is not only about taking advantage of news, economic events or price trends but also takes advantage of the basic structure and internal dynamics of Forex.
If you want to check if Forex scalping is a suitable strategy for your trading style, it is best to open a trial or demo account.
These accounts are free and allow you to implement different scalping strategies. All this is without any risk since it is not operate with real money.
Keys To Success Using Forex Scalping
As explained in the previous point, Forex scalping requires specific qualities from the trader. Likewise, to be successful with a Forex scalping strategy, the following is necessary:
- Knowing how to choose the currency pair on which to operate.
- Choosing a suitable broker for this trading technique.
- Choose the best time to trade.
- Use leverage and adequate risk management.
- Define a strategy to open and close positions automatically.
Knowing How To Choose The Currency Pair On Which To Operate
To develop a scalping technique, the trader should focus on one or at most two currency pairs. Each currency pair has its features that characterize its behavior. To scalp, the trader must know perfectly what these traits are like to operate the couple correctly.
Therefore, to be successful in a scalping strategy, it is more advisable to focus on the operation of a pair than to try to cover several teams without knowing them in depth.
The chosen pair must be included within the so-call main currencies, such as, for example, the EUR USD or the GBP USD.
These Pairs Are The Most Suitable For This Trading Technique For Two Main Reasons:
- They have higher liquidity.
- They exhibit a more moderate response to market events than other minor currency pairs.
So-called exotic currency pairs are generally not suitable for scalping, as their unpredictable price jumps make it challenging to manage the risk of orders properly.
Choosing A Suitable Broker For This Trading Technique
The choice of broker is one of the most critical decisions for the trader who wants to operate with this type of trading.
A Suitable Broker For Scalping In Forex Will Have To Fulfil The Following:
- Offer low spreads.
- Have stable trading platforms and analysis tools.
- Proven experience in Forex.
Spreads Are A Human Element In A Scalping Strategy:
For an operator who opens one or two positions in a day, the spread is not such a relevant variable. If he is successful in his operations, the spread will still a minimal cost that will not put his profitability at risk.
In contrast, in a scalping strategy, the situation is entirely different. Since the trader will likely open dozens of positions in a short time, the spread will significantly impact the trader’s bottom line.
Stable Trading Platforms And Analysis Tools
In a scalping strategy, technical analysis tools are use. In the brief periods that scalping uses, the fundamentals of the currency pair being trade have no effect on the price, or if they do, they are usually unpredictable in this time frame.
Therefore, the platforms offered by the broker must include a complete set of technical analysis tools and charts with a time scale of 1-2 minutes and up to 1 tick.
Proven Experience In Forex.
Forex scalping is a highly technical trading method that requires an efficient Forex broker who has been at the forefront of online trading for years. All of these features can found . the world’s leading Forex broker that puts at your disposal not only the best trading platforms but also offers excellent customer service.
Choosing The Best Time To Trade
Forex scalping is high-frequency trading that requires high market liquidity to ensure order execution at speed needed for the trader.
It Is Necessary To Use Pairs Of The Main Currencies.
In addition, more liquidity will likely be obtain if scalping is carry out during the hours of the day when there is a higher trading volume. These hours correspond with when the London and New York markets are open.
Use Leverage And Adequate Risk Management.
A good scalping strategy must combine leverage with proper risk management. Since positions have a small profit margin. Power allows you to increase profitability. On the other hand, since using force can increase losses. It is essential to carry out good risk management, defining how to exit operations to minimize losses.
This risk management is done by defining a “stop-loss” for each position we open. The stop loss minimizes losses if the trade does not go well and limits such losses to the amount the trader can afford to lose on each business.
Define A Strategy To Open And Close Positions Automatically.
With the high frequency that scalping requires. It is necessary to have a system that allows you to operate almost automatically to open and close positions. As the high speed that scalping requires does not allow in-depth analysis of every trade, it is vital to have a system you can repeatedly use with a reasonable confidence level.