Forex trading scalping strategies are built for identifying short term trading opportunities. These strategies can be coupled with various indicators and trading methods.
To get a better idea of what is scalping in Forex and, more precisely, how scalping in the Forex market works, let us go through them one by one.
When using Forex scalping trading strategies, it's important to choose a currency pair with the smallest spreads. As mentioned before, FX scalping strategies are not about making massive returns on one or two trades, it operates on small 5 to 15 pip gains. Therefore, large broker spreads can easily eat into those margins and take out significant portions of the trader’s payout.
Consequently, those who are considering how to scalp Forex might be more selective about the Brokers and currencies they wish to trade. For a practical example, let us take a look at the
The company offers three types of accounts to customers, each having different spreads. For the sake of simplicity, we will consider the Standard trading account.
As we can see from the chart above, EUR/USD, as the most traded currency pair, has the lowest spread of 1.2 pips. Traders can also open positions with some other pairs, including USD/JPY, GBP/USD, EUR/GBP, EUR/JPY and AUD/USD with less than 2 pip spreads.
Consequently, for those traders using Axiory trading platforms, those 6 currency pairs mentioned above are well suited for simple Forex scalping strategies. In general, major currency pairs have the most liquidity and the least spreads.
Pairs in the middle of the chart, EUR/AUD for might not be the best option for the type of trades, but in some cases, they might be still useful.
On the other hand, some relatively less liquid pairs, for example, GBP/NZD has an average spread of 4.4 pips, so some traders might not find this to be the best vehicle for scalping trades. So for example, if a trader is aiming for 10 pip payouts in each trade, in case of EUR/USD he or she simply might need 11 or 12 pip gain to achieve that, but in case of GBP/NZD – that is 15 pips.
Position traders care less about spread difference than traders that place many trades every day. Best Forex scalping strategies give traders more trading opportunities daily than swing traders, position traders and investors typically get.
Emerging market currencies, like Turkish Lira, Russian Ruble, and others might not be that useful for scalping as these currencies have low liquidity and high spreads. Currencies that are from developing nations are called exotic currencies, and it's best if scalpers avoid them altogether.
Picking More Volatile Pairs
Spreads are not the only useful criteria when choosing currency pairs for a
scalping trading strategy. When using Forex trading scalping methods, you want your currency pairs to be moving actively. Another important factor is volatility. Since this style of trading seeks quick gains, the market has to move faster to produce those results.
Less volatile pairs are not that useful for this purpose, since it might take much more time for the rates to move. Consequently, instead of a 5 or 10-minute trade, the trader might have to wait for half an hour or more for the pair to reach the desired level.
AUD/JPY, GBP/AUD, GBP/NZD are some examples of the currency pairs with relatively higher volatility. Actually, Gold and Silver prices usually also experience a greater degree of variation during trading days.
Avoiding Brokers with Dealing Desk
It goes without saying that, when it comes to trading, finding a broker with a good reputation is always critical. However, if one uses FX scalping techniques, that becomes even more crucial. In this style of trading, every second counts.
Therefore, the worst scenario for any trader would be if he or she opens positions, achieves 10 or 15 pip gains, but is prevented from closing positions because some dealing desk rejects to execute orders. This can be especially harmful, if some major announcement or event is taking place, since a trader can lose a significant amount of money, because of that.
Fortunately, nowadays, there are many brokers with no dealing desk and conflicts of interest, who also offer competitive spreads on currency pairs.
Using Moving Averages
The scalping strategies Forex traders are using can be coupled with various trading indicators. Keep in mind that moving averages work best in trends, and they do not do well when market conditions change to ranging. For many traders, the Simple Moving Average (SMA) or Exponential Moving Average (EMA) can be a very helpful tool. Traders can use a 5,10, 50, or even 100 period SMA or EMA or higher depending on his or her preference.
One way to go about this is to use the EMA or SMA trading signals for short time gains. However, keep in mind that the smaller timeframes you use, chart patterns and technical indicators become less productive due to increased market noise. The indicators are great tools for finding general trend directions that can help you while scalping. For instance, if markets are uptrending, you can only scalp in long direction to increase your chances.
Utilizing Bollinger Bands
Bollinger bands can be a very handy Forex scalping indicator. A flat Bollinger Band line suggests that the market is settling down for a tight range trading. The basic strategy here is very simple: a trader can buy a currency pair if it moves close to the lower bound and sell pairs where the price is close to the upper band.
Clearly, this does not guarantee that all positions will succeed, however, this tactic might help traders to win the majority of the trades.
Trading Support and Resistance
The best Forex scalping strategy doesn't have to be complex. Coupling scalping with the use of support and resistance
trendlines can help intraday traders increase accuracy. Essentially, a trader can take a look at the latest technical data from the Forex news websites, then buy currency pairs near support levels and sell pairs which trade near resistance.
Executing Trades Manually
The importance of placing Stop-Loss orders is underlined in countless Forex manuals and webinars. However, when it comes to
scalping, there might be an exception. The fact is that putting a Stop-Loss order in place usually requires precious seconds, during which the price might change by several pips. Especially if you are using 1-minute charts for scalping. Closing trades manually might be saving time, but it increases dangers. For example, when inexperienced traders trade without a stop loss, they might be hoping that the trade will reverse, but that might never happen and result in a blown up account.