7 Simple Forex Scalping Strategies and Methods

17 July 2020

The Forex scalping strategy focuses on achieving small winnings from currency fluctuations. Scalpers are usually using short timeframe charts, ranging anywhere from 1 minute fo 15 minutes. FX scalping methods typically do not aim for massive payouts, most trades close positions after gaining 5 to 20 pips.

We've picked 7 best methods that you can use when preparing for scalping. Firstly, since this strategy operates on very tight margins, it is essential to find brokers and currency pairs with very small spreads. In the long term trades, 1 or 2 pips may not make any noticeable difference, but in the case of an FX scalping strategy, it can represent 10 to 40% of the potential payout. 1 pip difference doesn't look much, but after 100 trades, it equals 100 pips. Spreads can add up easily.

Another important component for success in this field is choosing currency pairs with higher volatility. This essentially can provide traders with more trading opportunities.

Choosing brokers with no dealing desk is also essential, since getting a refusal for opening or closing trades at the wrong time can prove very devastating for the trading account.

When it comes to technical indicators, many popular Forex scalping strategies include utilizing moving averages, Bollinger bands, and even simply using support and resistance to find suitable entry points for opening positions.

What's Scalping and How Can I Use It. Learn how to scalp like a pro

Scalping Strategy Explained

Forex trading scalping strategies are built for identifying short term trading opportunities. These strategies can be coupled with various indicators and trading methods.
Here is the list of seven basic methods of the best scalping strategy:

Choosing Pairs with Lowest Spreads

Picking More Volatile Pairs

Avoid Brokers with Dealing Desk

Using Simple Moving Averages in trends

Utilizing Bollinger Bands

Trading Support and Resistance

Executing Trades Manually

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.

Choosing Pairs with Lowest Spreads

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 Axiory Forex Spreads.

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.

Forex Scalping Guide – Key Takeaways

The FX scalping strategies typically include trades with a 1 to 15-minute timeframe. Because of this, most professional traders do not use profit/loss orders and prefer to execute trades manually.

Finding the Broker and currency pairs with tight spread ranges is essential to a successful Forex scalping strategy. Since most traders only aim at 5 to 15 pip gain, the brokerage fees can make a significant difference.

Even after using several technical indicators, there is no 100% guarantee that a trader will always win the majority of the trades. As a measure of precautions, in many cases it might be better for traders to close losing positions at a smaller number of pip losses, compared to gains made with winning positions.

FAQ: Forex Scalping Methods

How many trades do scalpers execute per day?

As we have discovered in this guide to what is Forex scalping, this depends upon the preferences of an individual. Most of the part-time or just hobby traders might settle for just 1 to 8 trades per day.

When it comes to full-time professionals, they might aim for higher volume, which might even include 50 or even in some cases 100 trades per day.

What are some of the most and least volatile currency pairs in Forex?

There are many measures for this, but if we take the average daily volatility during the last 52 weeks as a standard (using investing.com calculator), there are some important patterns.

Currency pairs in which the central banks intervene frequently are usually less volatile. Two examples of this would be EUR/CHF and USD/CNY. Considering that Switzerland is surrounded by Eurozone countries, any sharp appreciation of Franc against the Euro in the short term can be damaging for the Swiss economy. Therefore, SNP intertwined in this pair’s exchange rates frequently, even going as far as imposing a 1.20 floor on the EUR/CHF rate for several years, until it collapsed in 2015.

The curious thing about the EUR/CHF from 2011 to 2015 was that it lost significance for long term traders. The Euro could not get much higher than 1.22 and SNB defended the 1.20 floor. So essentially, for those 4 years, this pair was only interesting from traders who used scalping strategy Forex methods.

China is famous for its cheap exports, consequently, the massive appreciation of Yuan can hurt the competitiveness of this country. Therefore, the value of USD/CNY is closely managed by the People’s Bank of China.

On the other end of the spectrum are Gold and Silver. According to the last 52 weeks of market data, they are at least 1.5 more volatile than most of the major currencies.

As for the currency pairs themselves, some of the most volatile ones are AUD/JPY, GBP/AUD, USD/ZAR, USD/TRY, NZD/JPY, GBP/NZD, EUR/AUD, and USD/RUB.

Who is designated as a Pattern Day Trader (PDT) and what type of regulations apply to those individuals?

According to the Financial Industry Regulatory Authority (FINRA) definition, a Pattern Day Trader (PDT) is a trader who executes 4 or more trades within five business days, while using a margin account.

According to the FINRA regulations, the individuals with such designations must maintain at least $25,000 on their accounts and must trade only on margin accounts. It might be helpful to note here, that this is an equity requirement, so it does not have to be all cash.

Luckily, most retail market maker Forex brokers are exempted from those regulations, so that the majority of traders can execute trades frequently without having to maintain a $25,000 on the account.

What are some of the most common mistakes scalpers make?

One of the most obvious and most frequent mistakes scalpers make is not cutting their losses on time when the market goes in the opposite direction. This is especially dangerous considering that in this case, one big loss can easily wipe out several trades worth of gains.
Over leveraging is another very common mistake. Since most traders with a scalping strategy are aiming for 5 to 20 pip gains, they increase leverage to make their payouts more significant.

The problem with this type of approach is that it magnifies the risk. For example, in the case of 1:400 leverage, all it takes is the market going in the opposite direction by 0.25% for the entire position to be wiped out. Even in case of a relatively more conservative 1:50 margin position, that number of only 2%.

Finally, late exits are another frequent issue. Traders might achieve his or her 10 or 20 pip wins, but instead of closing trades, he or she keeps the position open in the expectation that they could make even larger payouts. However, in scalping, this is a very risky tactic, with some trades eventually giving up all of their gains.

Why do some traders choose to avoid scalping in trading?

There can be several reasons why some traders might prefer to avoid scalping in Forex:

As mentioned before, a successful scalping requires finding securities with low spreads. This limits the field of choices significantly. For example, a trader might identify a very useful indicator GBP/NZD, however, with a simple scalping strategy this might have to be discarded because the average spread on this pair is 4.4 pips. Essentially, the problem here is that the client is limited to only a few currency pairs, which can lead to many missed opportunities.

Scalpers usually stay away from the major news releases, since it can cause a 20 or 50 pip swing in a matter of seconds. However, many traders want to get involved in those high, volatile trades. Such traders are called News Traders. News Traders have faster fingers than swing traders. Trading the news can be highly unpredictable for many traders/

Scalping trading strategies can also be very stressful for some people. Some long term traders devote some specific time to analysis, open positions with Stop-Loss orders, and then go about doing their other daily business without the need to constantly be in front of the trading platform. Scalping, on the other hand, requires constant vigilance, which can be very exhausting and stressful for some traders.

Finally, some traders prefer to aim for big payouts when it comes to trading, instead of 10 or 20 pip gains. The upside to this strategy is that one large winning trade can offset losses from several smaller ones. Since this is not possible with scalping Forex strategy, some traders might prefer to avoid this method.

What is scalping in forex?

In Forex, scalping refers to a trading method that aims to take advantage of short price waves. Usually, scalpers make 15-20 pips per trade. What's more, scalpers are more active than other types of traders as there's many scalping opportunities. Scalping is typically done intraday, using 1-15 minute chart timeframes. Financial instrument prices do not move in straight lines. When currency valuation increases or decreases from A to B, the change happens in waves. These waves are utilized by scalpers. Scalpers avoid less liquid market conditions, such as inactive trading sessions and trading exotic currency pairs. Scalpers need moving markets and low spreads.

How to scalp in forex?

In order to scalp in Forex, first you need to find the trading instruments. The best currency pairs for Scalping are Major pairs. Major pairs consist of two currencies: base and quote currencies. Major pairs include currencies from global economies such as EUR, USD, CHF, GBP, JPY, NZD, CAD, AUD. In a major pair, one part, either quote or base, is always US Dollar. Majors offer the least spreads. After creating a watch list, the next thing to do is to search for trading opportunities. Scalpers try to find local trends in larger trends or similar situations to take the advantage of short term price waves. For instance, let's say EUR/USD price is uptrending, the price tests and respects trendline support. Scalpers join the trade the moment it's confirmed that the trendline can hold the price. Price retraces back towards general trend direction and peaks. Scalpers get out of trading positions when that new peak starts reversing towards the trendline.