A forex scalping strategy is a short-term-based approach, which has become popular as access to the forex market has improved. Technological advancements across the African continent, coupled with low transaction costs have made it possible for anyone to trade forex, especially using their mobile devices. Technology provides many benefits to forex trading today.
Forex trading has become an increasingly popular option in recent months due to the Covid-19 pandemic. The lockdown has caused people to seek alternative ways to secure an income. One of the most common strategies used by experienced forex traders is scalping.
We explain what the Forex scalping strategy is and how it is used successfully to make a profit in forex trading.
What is a forex Scalping Strategy?
The technique is used by combining elements of technical analysis with the focus on price action. Trading decisions are formed by observing candlestick charts, using support and resistance levels and trendlines. Scalping traders usually look at charts on a timeframe between 1 and 15 minutes, with a higher time frame perspective on the 30 minutes to one hourly.
When applying the FX scalping method, large profits are not the goal. The method typically aims for most trades to close positions after gaining 5 to 20 pips. Once the currency pair to trade has been decided on, the scalper must act on the right signals, keeping a close ear to the ground for economic news or data that could impact the instrument.
Not only do scalpers enter and exit trades at a high rate, but many hold onto one position whilst still attempting to profit from another entry, often opposing their initial order on the same instrument. This allows scalpers to hold their original bias, but still potentially be profiting from pivot points moving towards their target – buying, selling, buying, selling is the image you can draw up in your mind when understanding a scalper’s perspective.
The scalping strategy does not appeal to many traders as price swings can be erratic in volatile market conditions requiring the trader to exercise equanimity and patience. Risk management is a crucial component to be consistent with this trading style.
Who are Forex Scalpers?
A forex trader who adopts the scalping style is known as a forex scalper. Scalpers place many small trades through the market session, focusing on small price movements with the effort of making a small profit. By placing a high frequency of trades, the scalper hopes to make small profits throughout the day that all add up when combined.
A forex scalping strategy comes with considerable risks and is reserved for traders who have a great deal of knowledge and skill, which takes time to acquire and perfect.
Scalping can be demanding on a trader as they must remain focused and exercise concentration to find the best possible entry and exit points. Decisions can be made within a matter of seconds or minutes depending on the time frame traded on.
Scalpers must take careful consideration when deciding on a broker to trade with. The broker’s platform is crucial to the foundations of the scalping strategy. The MetaTrader 4 platform is by far the most popular and accommodating trading platform for scalping. A scalper must be 100% proficient with the platform to negate the probability of making a mistake.
As a scalper, ensure you choose to trade the markets that are the most liquid. Liquidity is important as it guarantees volume in the market which allows the scalper to enter and exit trades at will. This can be when major forex market sessions overlap. Major currency pairs are usually the most liquid markets, such as GBP/USD and EUR/USD.
If the forex scalping strategy is something you are interested in, bear in mind the difference in time frames when drawing conclusions. What might seem like a strong trend on the higher time frame, might give a false impression of price action on the smaller time frames.
For example, what you see on the 15-minute chart is merely a few candlesticks, giving the trader the impression of high volume in their direction. On the higher time frame, it could paint a different picture. Four strong bullish candlesticks on the 15-minute window are equaled to one candlestick close on the 1 hourly chart.
Scalping needs to be approached with complete and absolute caution due to highly volatile conditions. Extreme price movement has the potential to hit your stop loss within seconds. You may not even have time to go to the bathroom!
False motives, unrealistic goals, greed, lack of effort, and insufficient knowledge are the main reasons why some are left disappointed and empty-handed. Before you do anything, acquire the skills and information needed to equip yourself for a career in forex trading.