How to Use Scalping Trading Strategy

As a trader, you are exposed to hundreds of forex trading strategies. Certainly, you cannot use all of them. If you attempt to do this, you may lose your entire investment within a very short duration. The secret is to have one or two strategies and then master them.

A scalping trading strategy is fast-paced with traders aiming to make a large number of short-term profits throughout the day. In this article,we will provide you with all the basic information behind this concept.

What is Scalping Trading Strategy

Scalping is a trading strategy designed to profit from small price changes, with profits on these trades taken quickly and once a trade has become profitable.

Scalping is not unlike day trading in which a trader will open a position and then close it again during the current trading session, never carrying a position into another trading period or holding a position overnight. However, while a day trader may look to take a position once or twice, or even a few times a day, scalping is much more frenetic and will trade multiple times during a session.

Because smaller moves happen more frequently than larger ones, even in relatively calm markets. This means that there are many small movements from which a scalper can benefit. In order to seek small profits, scalpers can place up to a few hundreds trades in a single day.

How to Use Scalping Trading Strategy

Now that you have an understanding of the fundamental aspects of scalping, let's take a closer look at how to set up for scalping.

1. Choosing A Forex Broker for Scalping

There are some brokers that do not allow scalping and prevent you from closing trades that last for less than three minutes or so. Therefore, when it comes to selecting the best Forex broker for your scalping strategy, the obvious first step will be to eliminate any brokers which do not allow scalping inside their system.

Furthermore, you must become very familiar with the trading platform that your broker is offering. Since you intend to scalp the markets, there is absolutely no room for error in using your platform.

2. Choosing A Time Frame

In order to execute trades over and over again, you will need to have a system that you can follow almost automatically. Since scalping doesn't give you time for an in-depth analysis, you must have a system that you can use repeatedly with a fair level of confidence.

One particularly effective 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 then consult a 5-minute chart to check any signals that come up.

3. Choosing Currency Pairs with Lowest Spreads

As we mentioned above, forex scalping strategies are not about making massive returns on one or two trades, it operates on small 5 to 15 pip gains. Therefore, large broker spreads can easily eat into those margins and take out significant portions of the trader’s payout.

Consequently, those who are considering how to scalp Forex might be more selective about the Brokers and currencies they wish to trade.

4. Choosing The Most Liquid Pairs

Pairs such as the EUR/USD, GBP/USD, USD/CHF, and USD/JPY offer the tightest spreads because they tend to have the highest trading volume. You want your spreads to be as tight as possible since you will be entering the market frequently.

5. Choosing Technical Indicators

You can use advanced techniques to track and carry out trades on your behalf.

-Moving Averages: For many scalping traders, the Simple Moving Average (SMA) or Exponential Moving Average (EMA) can be a very helpful tool. Traders can use a 5,10, 50, or even 100 period SMA or EMA or higher depending on his or her preference.

-Relative Strength Index (RSI): The relative strength index (RSI) is a momentum oscillator that predicts the future direction of the forex market over a period of time. Short-term traders, such as day traders and scalpers, can shorten the default settings of the RSI to monitor just minutes at a time, in order the best entry and exit points.

-Bollinger Bands: Bollinger bands can be a very handy Forex scalping indicator. A flat Bollinger Band line suggests that the market is settling down for a tight range trading. The basic strategy here is very simple: a trader can buy a currency pair if it moves close to the lower bound and sell pairs where the price is close to the upper band.

-SAR Indicator: SAR stands for 'stop and reversal'. The indicator is a series of dots placed above or below the price bars. The SAR scalping indicator displays chart points below the price during an upward trend. Conversely, the indicator displays chart positions above the price during a downward trend, signalling traders that prices are retracting.

Is Scalping a Suitable Style For You?

Scalping is not for everybody. Deciding whether scalping is a suitable trading style for you, will largely depend on how much time you are willing to dedicate to trading. Scalpers need to love sitting in front of their computers for the entire session, and they need to enjoy the intense concentration that it takes. You cannot take your eye off the ball when you are trying to scalp a small move, such as five pips at a time.

For a Forex scalping strategy to be profitable, you must quickly predict where the market will go, and then open and close positions within a matter of seconds. It requires intense focus and quick thinking to be successful. Not everyone can handle such fast and demanding trading.

If you think forex scalping is for you, keep reading to learn about the best forex scalping strategies and techniques.