Forex Scalping

What is Scalping?

Scalping is a short-term Forex trading strategy where the traders seek to profit from a very small currency exchange fluctuation. Scalping has a very short time horizon limit which means that you need to react very quickly to the changing market conditions. In this regard, you need to make sure that scalping is suitable to your own personality and you can react and read the price action very quickly.

The entry and exit levels are very crucial when scalping and can make the difference between losing and winning. Because in shorter time frames the price exhibits some very natural properties such as it tends to move more during a particular time of the day and during news events, scalping can be a good strategy to make money in the Forex market.

Forex brokers that allow Scalping

Not all Forex brokers allow scalping on their platforms.  I have spoken with a number of my contacts at the brokers to try and understand the reason, and what I have come to is that it could be one of two things – either the high-frequency trading adds to much load to the servers or scalping is somehow a component used to de-fraud the broker.  That said, here are a couple regulated brokers who do allow scalping on their platform.

Scalping Tips and Tricks

Avoid scalping the market during the news announcement and focus scalping post-news releases looking for price follow through in the direction of the initial market reaction. Or, if the price is fading be ready to change your view and take the other side.

As a scalper, your profit can be impacted by the spread, so any increase in the spread can damage your performance. Tip: choose a broker with lower spreads like XM, IronFX or FXTM and focus your trading on the major currency pairs with the biggest liquidity (EUR/USD, USD/JPY, GBP/USD, AUD/USD).

A less liquid currency pair will affect your ability to scalp, as the price usually will be more erratic and the spread will be bigger.  You can scalp the market anytime, however, there are times of the day when the market is more active and the price is more predictable. Tip: Scalp when the major trading sessions start:

  • London session opens at 8:00 AM GMT.
  • New York session opens at 1:00 PM GMT.
  • Tokyo session open at 00:00 AM GMT.

Advanced Scalping Strategy

An advanced scalping strategy seeks to capture the market flow.  Usually, in the FX market, the intraday market flow is driven by the real institutional money and central banks. The real institutional money needs to transact big money that has the potential to dislocate the price.  The real money tends to flow at particular times of the day when orders come in and get executed.  You can capture that by looking for instances at the London open, New York open and Tokyo open.  The price symptoms that show up during the major trading session openings can be very predictable, which means you can be able to capture those momentum moves.  One of the simplest ways of scalping the market is by trading the London open and then wait for a break in the Asia range. Normally, the first thing you have to do is to define the Asia range by drawing one resistance line at the highest price and one support line at the lowest price reached during the Asia session.

Once you have established the Asia range it all comes down to patience and discipline to wait for the London open and start trading in the direction of the breakout. In our example, the EUR/USD broke to the downside so we’re only going to look for selling opportunities.  The best scalping strategy, in this case, is to sell with each red candle and take profits at the close of the 5-minute candle.  Stop selling when you see green candles and only repeat the process with each new bearish candlestick.

Conclusion

Scalping is trading for a very short period of time capturing small price fluctuations. Unfortunately, scalping is really for those people who love to sit in front of the screen and have the discipline to stick to their trading rules. You need to be able to cut your losses short and let your winners run because that’s the only way you’re going to have a statistical profile of your trades that will make you profitable. You also have to find a broker that offers very tight spreads and Forex brokers that cater to scalpers (see above). Finally, make sure your broker provides you with precise execution and no slippage to ensure your success.