How to be a good forex scalper

A Beginner's Guide To Scalping In The Forex Markets.

Scalping, at least in trading, is a term used to denote the "skimming" of small profits on a regular basis, by going in and out of positions several times per day. Scalping is not unlike day trading in which a trader will open a position and then close it again during the current trading session; in other words never carrying a position into another trading period or holding a position overnight. Whereas a day trader may look to take a position once or twice, or even a few times a day, scalpers are much more frenetic and try to skim really small profits multiple times in a session. And whereas a day trader may trade off the five-minute and the 30-minute charts, scalpers will often trade off of tick charts and one-minute charts. In particular, some scalpers like to try and catch the high-velocity moves that occur around the time of the release of economic data and other important news events, such as the release of the employment statistics or GDP releases if that is what is high on the economic agenda.

The Scalper's Personality.

The Difference Between Market Making and Scalping.

The difference between a market maker and a scalper, though, is very important to understand. A market maker earns the spread, while a scalper pays the spread. So when a scalper buys on the ask and sells on the bid, he has to wait for the market to move enough to cover the spread he has just paid. In the converse, the market maker sells on the ask and buys on the bid, thus immediately gaining a pip or two as profit for making the market. Thus, the risk of a market maker compared with a scalper, although they are both seeking to be in and out of positions very quickly and very often, is much better for the market maker than the scalper. Market makers love scalpers because they trade often and they pay the spread, which means that the more the scalper trades the more the market maker will earn the one or two pips from the spread. (Find out how this tool magnifies both gains and losses. Check out Forex Leverage: A Double-Edged Sword .)

The Pros and Cons of Scalping.

But if you like to analyze and think through each decision you make, perhaps you are not suited to scalp.

How to Set Up for Scalping.

As a trader, it is up to you to research and understand the broker agreement and just what your responsibilities would be and just what responsibilities the broker has. You must pay attention to how much margin is required and what the broker will do if positions go against you, which might even mean an automatic liquidation of your account if you are too highly leveraged. Ask questions to the broker's representative and make sure you hold onto the agreement documents. Read the small print.

The Broker's Platform.

Choosing a Charting Time Frame.

Getting Prepared to Scalp.

It is always helpful to trade with the trend, at least if you are a beginner scalper. To discover the trend, set up a weekly and a daily time chart and insert trend lines , Fibonacci levels and moving averages . These are your "lines in the sand", so to speak, and will represent support and resistance areas. If your charts show the trend to be in an upward bias (the prices are sloping from the bottom left of your chart to the top right), then you will want to buy at all the support levels should they be reached. On the other hand, if the prices are sloping from the top left down to the bottom right of your chart, then look to sell each time the price gets to a resistance level. Depending on the frequency of your trades, different types of charts and moving averages can be utilized to help you determine direction.

In the example above, the weekly chart shows a strong upward bias of the EUR/USD. The price could be heading back to a target of 1.4280, the previous high on November 4, 2010.

The daily chart shows the price has reached the 127.6 Fibonacci extension , at about 1.3975. Clearly there is a possibility of a pullback to the trend line somewhere in the vicinity of 1.3850. As a scalper, you can take the short side of this trade as soon as your shorter term charts confirm an entry signal.

2. Prepare your trading charts.

Set up a 10-minute and a one-minute chart. Use the 10-minute chart to get a sense of where the market is trading currently, and use the one-minute chart to actually enter and exit your trades. Be sure to set up your platform so that you can toggle between the time frames.

Expectancy - Testing the System for Reliability.

Remember that too much analysis will cause paralysis. Therefore, practice the methodology until it is automatic for you, and even boring because it becomes so repetitive. You are in the business of scalping to make a profit, not to boost your adrenalin or feel like you are playing in a casino. Professional traders are not gamblers, they are speculators who know how to calculate the risk, wait for the odds to be in their favor and manage their emotions.

When Not to Scalp.

Always keep a log of your trades. Use screen capture to record your trades and then print them out for your journal. It will teach you a great deal about trading and even more about yourself as a trader.

How forex scalpers make money.

This article is part of our guide on how to use scalping techniques to trade forex. If you haven’t already we recommend you read the first part of our series on forex scalping.

We have already stated that scalping is about making small profits over a long time which can reach significant amounts when combined. But of course, scalping is not about randomly entering the market and buying or selling while expecting luck to be on our side. Instead, a successful scalper is very methodical about both his decisions and expectations from the market. He aims to combine various unique features of the forex market to create profitable conditions for trading, and in this sense he aims to exploit the most basic features of the market for his purposes. Scalping is not only about exploiting economic events, price trends, and market events, but also the basic structure, and internal dynamics of the currency market itself, and this is what sets it apart from other strategies such as swing trading or trend following.

Exploiting sharp price movements.

Many scalpers like to concentrate on the sharp movements which frequently occur in the currency market. In this case, the aim is to exploit sudden changes in market liquidity for quick gains later. This kind of scalping is not very much concerned about the nature of the market traded, whether prices are trending or ranging, but attaches great importance to volatility. The purpose is to identify the cases where temporary shortages of liquidity create imbalances that offer trade opportunities.

In example, let’s consider a typical for traders of the EURUSD pair. In most cases, spreads are tight, and the market is liquid enough to prevent any meaningful gaps in the bid-ask spreads. But when, for whatever reason (often a news shock, but we don’t concern ourselves with the cause here), liquidity dries out, and a significant bid-ask gap appears, the quote will be split into two distinct pieces of data: the bid is, let’s say 1.4010, while the ask is 1.4050. A very short while, the bid-ask spread will narrow, and the price will gravitate rather hastily to one side. Scalpers use these very fast fluctuations for making quick profits. Right after the price has moved up to 1.4030, and the bid-ask spread has narrowed to normal levels, a scalper may sell, for example, and as volatility takes the price lower to, 1.4020, he closes his short position to open a long one, and so on. The point is to profit from the emotional reactions of the market by remaining calm, and betting that behind the sound and fury, there is nothing of significance, at least for the immediate term.

We’ll discuss this trading method in greater detail while examining news breakouts. Gaps which can be exploited by scalpers appear most often in the aftermath of important news releases. The reader can himself open up the five minute charts of the price action after a non-farm payrolls release, for example, and observe the many “loops” where the price action returns to where it began after a series of very severe zigzags. Some scalpers exploit such periods of emotional intensity for profit in the manner just mentioned. They will buy or sell just before the release itself, and trade the sharp, brief swings for a quick profit.

Scalping involves small profits compounded over a long time to generate significant sums. But often the returns from scalping are so small that even when combined over weeks or months the returns are insignificant for the amount of effort involved, due to the small size of the actual movements in the currency market. To overcome this problem, almost all traders involve some amount of leverage while scalping the forex market.

The level of leverage appropriate for a scalper is a subject of debate among traders. But in spite of the debate, the most solid advice that any beginning scalper should heed is to keep leverage as low as possible for at least the first two, three months of trading. We do not want to take significant risks while we are still unsure about which strategy we should be suing while trading. On the other hand, since the scalper is certain to use a predetermined stop-loss, and not to tamper with it (a scalper doesn’t have that much time to spend on each individual trade), a leverage ratio that is inappropriate to slower traders can be acceptable for him. For instance, a trader whose positions are held over weeks may take a long time before deciding to exit a position, even if the market is against him for a time. But the scalper will immediately close a position as soon as the stop-loss level is reached (and the process is usually automatic).

In short, a higher level of leverage (up to 20 or 50:1) can be acceptable for traders who open and close positions in very quick succession, provided that stop-loss orders are never neglected. But there is still one caveat: in cases like the aftermath of a surprise Fed decision, or an unexpected non farm payrolls release, spreads can widen instantly, and there may not be enough time to realize the stop-loss order even with a competent forex broker, and losses would be multiplied if high leverage were to be used. To prevent such outcomes from materializing, it is a good idea to lower the leverage ratio significantly if we seek to trade market events that can cause gaps in the bid-ask spread, and create very large volatility.

Scalping Strategies.

Although we’ll discuss scalping strategies extensively later, we need to mention here that scalping requires a considerable command of technical analysis and strategies. Since one sizable mistake can wipe out the profits of hundreds of trades taken during a whole day, the scalper must be very diligent in analyzing the market, and disciplined while applying his analysis and executing his strategies.

The role of fundamental analysis in scalping is usually very limited. During the time frames preferred by scalpers, markets move in a random fashion for the most part, and it is impossible to discuss the impact of a GDP release during a one-minute period, for example. Needless to say, events influencing the forex market are not limited to the clustered major releases of each day. Many scheduled and unscheduled events provide input to the markets continuously, and as such, even short term movements have some form of macro-reasoning behind them. However, it is exceptionally difficult for the retail trader to keep updated with all kinds of news events occurring throughout the day, and what is more, the markets reaction is itself often erratic and unpredictable. Consequently, it is difficult to use fundamental strategies in scalping.

Finally, some traders combine scalping with another approach such as trend following or range trading and only differ from the pure practitioners of these strategies in terms of their exposure times. Although this is a valid approach, the great complexities of adjusting a trend following strategy to suit a micro-timing trade plan makes this impractical in terms of both analysis and execution.

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.

Forex Scalping – Extensive Guide on How to Scalp Forex.

Forex scalping is a popular method involving the quick opening and liquidation of positions. The term “quick” is imprecise, but it is generally meant to define a timeframe of about 3-5 minutes at most, while most scalpers will maintain their positions for as little as one minute.

The popularity of scalping is born of its perceived safety as a trading strategy. Many traders argue that since scalpers maintain their positions for a brief time period in comparison to regular traders, market exposure of a scalper is much shorter than that of a trend follower, or even a day trader, and consequently, the risk of large losses resulting from strong market moves is smaller. Indeed, it is possible to claim that the typical scalper cares only about the bid-ask spread, while concepts like trend, or range are not very significant to him. Although scalpers need ignore these market phenomena, they are under no obligation to trade them, because they concern themselves only with the brief periods of volatility created by them.

Is Forex Scalping for you?

Forex scalping is not a suitable strategy for every type of trader . The returns generated in each position opened by the scalper is usually small; but great profits are made as gains from each closed small position are combined. Scalpers do not like to take large risks, which means that they are willing to forgo great profit opportunities in return for the safety of small, but frequent gains. Consequently, the scalper needs to be a patient, diligent individual who is willing to wait as the fruits of his labors translate to great profits over time. An impulsive, excited character who seeks instant gratification and aims to “make it big” with each consecutive trade is unlikely to achieve anything but frustration while using this strategy.

Attention is essential for the forex scalper.

Scalping also demands a lot more attention from the trader in comparison to other styles such as swing-trading, or trend following. A typical scalper will open and close tens, and in some cases, more than a hundred positions in an ordinary trading day, and since none of the positions can be allowed to suffer great losses (so that we can protect the bottom line), the scalper cannot afford to be careful about some, and negligent about some of his positions. It may appear to be a formidable task at first sight, but scalping can be an involving, even fun trading style once the trader is comfortable with his practices and habits. Still, it is clear that attentiveness and strong concentration skills are necessary for the successful forex scalper. One does not need to be born equipped with such talents, but practice and commitment to achieve them are indispensable if a trader has any serious intention of becoming a real scalper.

Automated trading systems.

Scalping can be demanding, and time-consuming for those who are not full-time traders. Many of us pursue trading merely as an additional income source, and would not like to dedicate five six hours every day to the practice. In order to deal with this problem, automated trading systems have been developed, and they are being sold with rather incredible claims all over the web. We do not advise our readers to waste their time trying to make such strategies work for them; at best you will lose some money while having some lessons about not trusting anyone’s word so easily. However, if you design your own automated systems for trading (with some guidance from seasoned experts and self-education through practice) it may be that you shorten the time which must be dedicated to trading while still being able to use scalping techniques. And an automated forex scalping technique does not need to be fully automatic; you may hand over the routine and systematic tasks such as stop-loss and take-profit orders to the automated system, while assuming the analytical side of the task yourself. This approach, to be sure, is not for everyone, but it is certainly a worthy option.

Some words on trade sizes and forex scalping.

Finally, scalpers should always keep the importance of consistency in trade sizes while using their favored method. Using erratic trade sizes while scalping is the safest way to ensure that you will have a wiped-out forex account in no time, unless you stop practicing scalping before the inevitable end. Scalping is based on the principle that profitable trades will cover the losses of failing ones in due time, but if you pick position sizes randomly, the rules of probability dictate that sooner or later an oversized, leveraged loss will crash all the hard work of a whole day, if not longer. Thus, the scalper must make sure that he pursues a predefined strategy with attention, patience and consistent trade sizes. This is just the beginning, of course, but without a good beginning we would diminish our odds of success, or at least reduce our profit potential.

Now let’s take a look at the contents of this article where forex scalping is discussed with all its details, advantages and disadvantages. Our suggestion is that you peruse all of this article and absorb all the information that can benefit you. But if you think that you’re already familiar with some of the material, to shorten your route, we present the table of contents of this article.

1. How scalpers make money: Here we will take a look at the logic behind scalping, and we’ll discuss the best conditions and necessary adjustments which must be made by a scalper for profitable trading.

2. Choosing the right broker for scalping: Not every broker is accommodative to scalping. Sometimes this is the stated policy of the firm, at other times the broker creates the conditions which make successful scalping impossible. It is important that the novice scalper know what to look for in the broker before opening his account, and here we’ll try to enlighten you on these important points.

3. Best currencies for Scalping: There are currency pairs where scalping is easy and lucrative, and there are others where we advise strongly against the use of this strategy. In this part we’ll discuss this important subject in detail and give you usable hints for your trades.

4. Best times for Scalping: There is an ongoing debate about the best times for successful scalping in the forex market. We’ll present the various opinions, and then offer our own conclusion.

5. Strategies in Scalping: Strategies in scalping need not differ substantially from other short-term methods. On the other hand, there are particular price patterns and configurations where scalping is more profitable. We’ll examine and study them in depth in this section.

a. Range Scalping: Some traders consider ranging markets better suited for scalping strategies. Here we’ll examine why, and how to scalp under such conditions.

b. Breakout Scalping: We’ll examine news breakouts, and technical breakouts separately and discuss suitable scalping strategies for both.

c. Trend Scalping: Here we’ll take a general look at forex scalping in trending markets.

6. Trend Following while Scalping: Trends are volatile, and many scalpers choose to trade them like a trend follower, while minimizing the trade lifetime in order to control market risk. In this part we’ll examine the usage of Fibonacci extension levels for scalping trends.

7. Disadvantages and Criticism of Scalping: Scalping is not for everyone, and even seasoned scalpers and those committed to the style would do well to keep in mind some of the dangers and disadvantages involved in using the style blindly.

8. Conclusions on Scalping: In this final section we’ll combine the lessons and discussions of the previous chapters, and reach at conclusions about who should use the forex scalping trading style, and the best conditions under which it can be utilized.

All Forex Scalping – Extensive Guide on How to Scalp Forex Articles.

Using Fibonacci Levels for Scalping the Forex Market.

Two different scalping strategies, two different timings.

Pattern Scalping Strategy.

How forex scalpers make money.

Forex Scalping Guide - Conclusions.

Forex Scalping - Criticism and Disadvantages.

The Best Times for Scalping Forex.

The Best Forex Brokers for Scalping.

The Best Currencies for Scalping Forex.

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.

Forex 1-Minute Scalping Strategy Explained.

Even if you're a complete beginner in trading, you must've come across the term "scalping". No matter what you may think, it has nothing to do with cowboys or the Wild West.

But what does it mean?

Scalping in the foreign exchange market is a method of trading certain currencies based on real-time technical analysis. The main goal of scalping is to make a profit through purchasing or selling currencies by holding a position for a very short period of time and closing it for a small profit.

Without further ado, let's dive right in and see what one of the most popular Forex scalping strategies – a 1-minute Forex scalping strategy – has to offer.

A Guide to the Forex 1-Minute Scalping Strategy.

A 1-minute scalping strategy is a good starting point for Forex beginners. However, you should be aware that this strategy will demand a certain amount of time and concentration. If you aren't able or willing to put in effort for at least a few hours a day, FX 1-minute scalping might not be the best strategy for you.

FX 1-minute scalping is a day trading strategy as it involves opening a certain position, gaining a few pips, and then closing the position. It is one of the most basic and resourceful trading strategies.

The main aspect of Forex scalping is quantity. It is not unusual for traders to place more than 100 trades a day. For this reason, it is important to pick a broker with the smallest spreads, as well as the smallest commissions.

Talking about the strategy itself, let's have a look at the strategy validity, time frame, indicators, and sessions.

The validity of currency pairs, every currency pair; 1-minute time frame; Necessary indicators: Stochastic 5, 3, 3, and 50 EMA, 100 EMA* (available on MetaTrader 4); Preferred sessions: London, New York – high volatility.

* EMA stands for "Exponential Moving Average", the second most popular type of moving averages after the Simple Moving Average (SMA), except for the fact that more importance is given to the latest data.

We recommend to explore entry points and necessary stop-loss levels on your trading terminal.

If you do have the time to try out the strategy, you should absolutely give it a go! The perfect way to do so is with our risk-free demo account.

Firstly, it is important to broaden your understanding of the market. By trying different approaches, you can see your strategies from a new perspective and gain valuable insight into the inner mechanics of trading.

Secondly, even if it doesn't work out for you, the risks are very low. You shouldn't suffer major consequences. The essence of the strategy will not allow for high losses, or high gains for that matter.

FX 1-Minute Scalping Strategy Purchase (Long) Entry Point.

The first EMA (50) must be positioned above the second EMA (100). When this has occurred, it is essential to wait until the price comes back to the EMAs. In turn, the Stochastic Oscillator is exploited to cross over the 20 level from below. The moment you observe the three items arranged in a proper way, opening a long (buy) order may be an option.

To stay safe, stop-losses are vital. Stop-losses are arranged around 2-3 pips just below the last low point of a particular swing. As the 1-minute Forex scalping strategy is a short-term one, it is anticipated to gain 8-12 pips on a trade. Hence the take-profits are best to remain within 8-12 pips from the entry price.

FX 1-Minute Scalping Strategy Sell (Short) Entry Point.

The first EMA (50) should be positioned below the second EMA (100). As with the buy entry points, we wait until the price returns to the EMAs. Additionally, the Stochastic Oscillator is utilised to cross over the 80 level from above.

As soon as all the items are in place, you may open a short or sell order without any hesitation. The exact same things happen here. Stop-losses are positioned near 2-3 pips below the last low point of the swing accordingly, and take-profits should remain within 8-12 pips from the entry price.

The Pros and Cons of 1-Minute Scalping Strategy.

In order to determine whether Forex scalping and Forex 1-minute scalping may prove useful for your type of trading, we are going to look more deeply into the pros and cons of scalping.

Less risk exposure, i. e., a brief exposure to the market reduces the possibility of running into inauspicious events. Relatively small movements are easier to achieve. This implies that a larger supply and demand imbalance is required to ensure bigger price changes. The main logic behind scalping is that smaller moves occur far more frequently than larger ones. Even when the markets are comparatively quiet, a good Forex scalper can utilise many small moves.

Now, these pros sure sound quite tempting, but it is important to look at the disadvantages as well.

A large deposit is needed. Bankers and dealers have a certain advantage over amateur scalpers as they have more information about the market. A 1-minute scalper needs quick reflexes, good instincts, and mathematical skills. It can be difficult to scalp and maintain a good risk/reward ratio. For instance, with a ratio of 2:1, your take-profit at 10 pips requires a stop-loss at 5 pips, making it too close not to get stopped out in the majority of cases. 1-minute scalping is time-consuming and may lead to stress and an unhealthy lifestyle.

You have to see for yourself whether the cons outweigh the pros and vice-versa.

Technological resources can also enhance your trading.

To expedite your order placement, with Admiral Markets, you can access an enhanced version of the 1-click trading terminal via MetaTrader 4 Supreme Edition.

Obviously, if you're interested in Forex trading strategies, you could check out our handy strategy infographic – you may find another technique you'd like to try out.

Final Thoughts.

Scalping proves to be an extremely effective strategy – even for those who use it as a purely supplementary strategy. The same goes for Forex 1-minute scalping.

However, it is important to understand that scalping is hard work. Scalpers are rewarded for quantitative work – the more Forex scalping they perform, the bigger the profit they make. In the end, the strategy has to match not only your personality, but also your trading style and abilities.

You might be interested in watching an hour-long full explanatory video on Forex scalping for beginners:

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