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Forex Scalping Strategies

by | Aug 24, 2020 | Forex Trading |

Simple And Profitable Forex Scalping Strategies

Looking for simple and profitable forex scalping strategies? In this ultimate forex scalping guide, we answer all your questions about forex scalping and provide various profitable scalping strategies.

Scalping Forex For A Living

Before we go in-depth into scalping, we should cover the basics first. What is scalping? Scalping is a short-term trading strategy wherein a trader takes advantage of small price changes in hopes of making profits. Unlike day traders, scalpers hold their positions for only a few seconds up to a few minutes. Because of this short duration, they can only gain small profits from these trades. However, if done correctly, these small profits will add up to a large sum of money. 

One of the reasons why scalping is a popular strategy is because it gives more trading opportunities within the day. The forex market is the most volatile and most liquid, and scalpers make the most out of the price fluctuations of currency pairs. This strategy also exposes the trader to less risk since they are only in the market for a very short time. Once they see a trade become profitable, they will immediately exit the trade.

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Is Forex Scalping Profitable?

Scalping sounds easy and is the easiest way to make money. But is this forex trading strategy really profitable? 

Just like any other trading strategy, scalping can be profitable, whether as a primary strategy or supplemental strategy provided that you are well-prepared beforehand. It is not for everybody as it can be demanding. If you are thinking of scalping, you will need to spend most of your time glued on your computer to monitor the small price fluctuations in the market closely. Not only that, but you will also have to hone your skills, such as technical analysis, to make quick decisions. 

While scalping is a low-risk trading strategy, there is a chance that a bad trade could wipe away the rest of the small profits you have gained earlier. This is why scalpers should be focused and disciplined at all times. Exit strategies are important in scalping to reduce significant losses.

Beginners might find it difficult to use scalping as their trading strategy so if you are just starting, you need to know the ins and outs of scalping.

How Do You Get 10 Pips In One Day Forex?

The “10 Pips A Day” forex trading strategy is a simple strategy wherein the trader stops trading as soon as he makes 10 pips. Once a trader hits 10 pips, he will exit the trade and then repeat the process the next day. The goal of this strategy is to acquire fast, small wins daily. 

For this strategy, major currency pairs with higher liquidity and trading volume such as EURUSD, GBPUSD, and USDJPY will be used. Money management is also going to be a critical factor in the success of this strategy. It might be easy to gain 10 pips, but what if you don’t and start incurring losses instead? Do you continue until you make a profit? Determining the necessary profit/loss ratio is a fundamental part of risk management and makes it easier to set stop-loss orders to prevent losing more money. Sometimes, it would be better to walk away after sustaining losses and try again tomorrow.

Can You Become A Millionaire With Forex?

Yes, it is possible to become a millionaire with forex trading, but it does not happen overnight or in a few months. It would take years and that is only if you have mastered the market and developed your skills. Having a well-thought-out strategy that you stick to and also having a good broker will contribute to your success. 

You might have seen and read about people living off forex, having a great life, and you also want that for yourself. The catch is that these people already have more than adequate capital to trade and it is easier for them to make money in a few years. However, some people do not have the same living conditions so the only way that they can achieve this is to have the patience to trade even if starting with a small account.

Is Scalping A Good Strategy?

If you are able to commit your time to trade, then scalping can be a suitable strategy for you. Unlike long-term strategies wherein you could step away and monitor the platform from time to time, this strategy will demand most of your time because you will need to be on the constant lookout for the small price fluctuations in the market. 

You will also have to be a quick thinker when it comes to scalping. Since you will be using this strategy, you need to react quickly and analyze whether the price movement is profitable or not. The aim of scalping is to make as many trades as possible and to do that, you have to be quick on your feet. Also, it goes without saying that discipline is a key factor to success. You should stick to your trading strategy and set your limits so that you would not incur more losses and only take the profit that you gain from following your plan. 

If you are the type of trader who needs sufficient time to make decisions upon reading the market, then scalping is not the best strategy to use for forex trading. It requires fast reflexes while making wise decisions to get profitable trades. With many trading opportunities available, the market can get intense for scalpers. For first time traders, long-term strategies might be more appropriate, but once you get the hang of it and develop your trading personality, you can try short-term strategies such as scalping.

How Many Pips Is Scalping?

For forex scalping, traders usually aim to gain 5 to 10 pips for each position. Scalpers use high leverage with these small percentages which can add up over time especially if their trades are profitable. They can magnify their profits from this manner if they are successful, but a wrong move can also magnify their losses so they should closely monitor the movements in the market.

What Is The Best Time Frame For Scalping?

Since scalping is a very short-term trading strategy, it only uses short timeframes such as 1-minute, 5-minute, and 15-minute charts to find the most profitable trades. These short timeframes show more details about the market movements, unlike longer time charts which show a longer perspective of the market. 

The 1-minute and 5-minute charts are the most popular timeframes which usually give an average of 5 pips and 10 pips, respectively. The 15-minute chart is the least popular because traders can only make fewer trades than with shorter timeframes. Whatever timeframe you plan to use in scalping, the success lies in the currency pair you will be using. For scalping, you should only trade with a volatile currency pair with the lowest spread.  

 

How Much Are 10 Pips Worth?

Pip is short for percentage in point or price interest point and it represents the smallest amount of change of a currency pair exchange rate. It can be seen in the fourth decimal place or the last digit in most currency pairs. 

In forex trading, the four major currency pairs that are traded are the EUR/USD, GBP/USD, USD/JPY, and USD/CHF. The first currency is referred to as base currency while the second pair is referred to as quote currency. Among the currency pairs, the ones paired with the USD is the most traded. If USD is listed as the quote currency, the pip amounts are fixed. 

There are three common lot sizes in the forex market: standard lot, mini-lot, and micro-lot. Below are their fixed pip values:

  • Standard lot: USD$10 or 100,000 units of currency
  • Mini lot: USD$1 or 10,000 units of currency
  • Micro lot: USD$0.10 or 1,000 units of currency

Since the pip values are fixed if USD is the quoted currency, the value of a pip can be calculated easily. For example, in a EUR/USD standard contract, 10 pips are equal to $100 since one pip has a fixed value of $10. On the other hand, if the USD is the base currency instead of the quote currency (i.e. USD/CAD), you will need to divide the pip values above by the current exchange rate. 

However, the Japanese Yen (JPY) is an exception. Since JPY has a lower value than other currencies, traders should keep in mind that the pip is located in the second decimal place (0.01). To find the value of a pip with JPY as the quote currency (i.e. USD/JPY and EUR/JPY), you will have to divide 0.01 by the exchange rate. For example, if the rate of USD/JPY is 105.99, the value of one pip is 0.01 / 105.99 = 0.000094348 USD. 

Now that we have the value, we can now compute for the value of a pip on a standard lot. The fastest way to compute is to multiply the contract size and the value of one pip. Therefore, 100,000 x 0.000094348 = 9.4348. If you make 10 pips on a trade, it will be worth $94.35.

How Many Pips Should My Stop Loss Be?

A stop-loss order is a necessary tool to minimize risk in case the market moves in the opposite direction. That way, traders can minimize their loss by exiting the trade as soon as it happens. Ideally, you should risk no more than 1% of your account. For example, if you have $5,000 in your account, you should not risk more than $50 per trade. 

As to how many pips should your stop loss be, it will all depend on the contract size you want to trade. A standard lot has a value of $10 per pip so your stop-loss order should be within 5 pips. If you go beyond 5 pips, you will be risking more than what you aim for (6 x $10 = $60). You could also buy multiple lots as long as you are within your risk limit.

What Is The Best Scalping Strategy?

Scalping is a short-term trading strategy that aims to make profits from small price changes in the market. In this strategy, traders can make many trades in a day because they only hold their positions for a few seconds or a few minutes. While scalping makes traders less exposed to any major changes in the market, they are dealing with a very fast-paced environment. This strategy requires intense focus and quick decisions from the scalper which can be overwhelming for some people. If the shortness of time is going to be an issue, a long-term trading strategy is a better option. 

But if you are comfortable in using scalping as your trading strategy, you can turn your trading profitable by using simple and efficient scalping strategies. Here are some of the best and profitable scalping strategies that you can use:

1. Scalp trading using Stochastic Oscillator

The term stochastics refers to the point of the current price in relation to its range over a period of time. In scalping, the stochastic oscillator is used to find an uptrend or downtrend in the market. It consists of a lower and upper level which acts as signals if a trend has crossed over. The stochastic act as a guide for entry and exit points.

2. Scalp trading using Exponential Moving Averages

By using two or three exponential moving averages (EMA), the trend of the average price of a forex pair over a period of time is shown. This indicator identifies the best points for buying and selling. In a bearish market, it is time to sell when the current price reaches the lowest EMA. The opposite applies to a bullish market as the signal to buy is when the current price reaches the highest EMA.

3. Scalp trading using Bollinger Bands

Bollinger bands consist of a centerline (EMA) and two bands (price channels) above and below and they are used to identify the market’s volatility. The bands contract if there is little movement in the market and the bands expand if the market is loud. In scalping, Bollinger Bands act as signals to go short when the price reaches the upper band and to go long when the price reaches the lower band.

4. Scalp trading using Parabolic SAR Indicator

The Parabolic SAR Indicator is used to identify if there is a chance of a reversal in trend or price movement. This indicator uses dots on a chart and if the position of the dots changes, it indicates that a change in trend is happening.

5. Scalp trading using RSI

Relative Strength Index or RSI indicator is used to identify the strength of the current market and also used to identify oversold and overbought conditions in the market. Scalpers use this to find the best entry points in a trend. If the RSI shows a reading of 30 or below, there is an oversold market condition with the high possibility of the price going up. When this happens, it can act as a signal to buy.

 On the other hand, if the RSI shows a reading of 70 or higher, there is an overbought market condition and has a high possibility of price going down. This could act as a signal to sell.

Always keep in mind to keep your scalping strategy simple. Since you need to make fast decisions in scalping, you should not complicate yourself. A well-thought-out strategy is a vital part of your success in forex trading. The strategies above should also be paired well with your chosen timeframe for scalping. There are many factors to be considered before you scalp and to determine what is best, you need to practice it with different timeframes.

1-Minute Scalping Strategy

The 1-Minute Scalping strategy is great for beginners but only if you have the time to spare a few hours a day. Using this timeframe in scalping means the focus is to hold many positions throughout the day. This strategy can work with major currency pairs using indicators such as EMA and stochastics. It is also highly recommended to use it in highly volatile times, specifically during New York closing times and London opening times. Since you will only hold trades for a short time, you will have less exposure to major changes in the market. 

However, the downside of this strategy is that a large deposit is needed to be able to make many trades. It can also stress you out due to constricting time conditions. 

5-Minute Scalping Strategy

The 5-minute scalping strategy is an easy strategy to follow that can be used on currency pairs such as EURUSD, GBPUSD, USDJPY, and EURJPY. In this strategy, the trader should be able to make a minimum of 10 trades in a day and must have a good exit strategy to minimize losses. The goal of this strategy is to spot chances of reversal, hold a position, and use risk management tools to profit from the change in direction. Technical indicators such as Parabolic SAR and EMA can be used in a 5-minute scalping strategy. 

15-Minute Scalping Strategy

The 15-minute scalping strategy is the least popular among the three but it is still used by some traders since it gives them more time to think of their trades. Usually, the 15-minute timeframe is used as a supplement to monitor the market. If used as a primary strategy, it is usually paired with a stochastic indicator to identify overbought and oversold market conditions. From there, it is easier to find the best entry and exit points to make a profit.

As always, best of luck!

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