A Good Forex Scalping Strategy

The forex market is a highly volatile space, which sees an estimated $6.6 trillion traded globally every day.

Interestingly, there are numerous ways in which you can realise a profit in this market, depending on your risk profile, understanding of forex, and expectations in terms of a monthly yield. 

If you have a healthy appetite risk and want to pursue short-term gains, scalping may well be your preferred strategy. Here’s a breakdown of forex scalping and the key considerations.

What is Scalping in Forex?

The term ‘scalping’, a popular forex trading strategy, refers to the process of opening and closing multiple market positions during each 24-hour period.

Interestingly, this strategy differs from day trading thanks largely to the sheer volume of positions opened during a 24-hour period, while most scalping trades will last for just a few seconds or minutes.

So, instead of opening one currency pair position at the start of a trend and closing it at the end, scalpers will open and then close multiple positions throughout a single trend.

Forex scalpers typically aim to gain just a few pips at a time, in the pursuit of several small and incremental gains rather than a concise number of larger returns. 

The Key Considerations Before Scalping

Before you look to start scalping as your primary way of leveraging forex market profits, there are a few key considerations that you’ll need to keep in mind.

One of the most important is the role of liquidity in scalping, with forex considered to be the most liquid entity of its type anywhere in the world. Liquidity refers to the ability to buy and sell quickly without affecting a market’s price, and major pairs like the EUR/USD are among the most liquid financial assets in the world.

Ultimately, high liquidity is good news for scalpers, who are required to enter and exit their forex positions quickly (sometimes within a matter of seconds) and choose to pursue reliable and incremental returns rather than being at the mercy of volatile price shifts.

Liquidity in forex isn’t fixed, of course, as it depends on various factors including your chosen currency pair and the time that you choose to trade.

As we’ve already touched on, major currency pairs such as the EUR/USD are highly liquid and best suited to forex scalpers, while trading during periods where different sessions overlap (such as 1 pm and 5 pm when both the London and New York Stock Exchanges are open) see increased activity and inflated levels of liquidity.

Volatility is another key consideration when scalping, while it may also be seen as favourable when trading derivatives.

The reason for this is simple; it enables traders to profit directly from rising and falling market prices and leverage volatility to their advantage, but scalpers need to create risk-management strategies that minimise the risk of short-term loss.

How to Scalp Forex as a Beginner

The question that remains, of course, is how to start scalping as a beginner and forge a viable trading strategy. Here are some steps to keep in mind:

●     Decide Whether to Go Long or Short on Targeted Pairs: As a starting point, we’d recommend targeting a couple of major currency pairs and deciding whether to go long or short on these assets. It’s best to leverage major pairs like the EUR/USD and the GBP/USD as part of a scalping strategy while basing your decision to go long or short on factors such as real-time market conditions, the macroeconomic climate, and the time of day during which you intend to trade.

●     Use Stop Losses and Risk-Management Tools: In terms of risk management, you can turn to your online trading platform to safeguard your various forex positions. So-called “stop losses” are particularly important for scalpers, as they automatically close positions once they’ve incurred a predetermined level of loss. This caps losses while helping you to manage multiple positions simultaneously, which can be challenging at the best of times for scalpers.

●     Utilise Scalping Indicators: Several technical indicators are important to scalpers, including ‘Bollinger Bands’. These indicate areas of real-time market volatility, based on a simplistic moving average with a standard deviation set above and below. A more general moving average can also be relied upon by scalpers, as this relatively straightforward mathematical formula helps you to spot emerging and common trends in the forex market and leverage them accordingly.