Scalping forex trading strategies require careful analysis and a significant time commitment. In this guide, we explain how to start scalping in forex, covering popular systems and the various pros and cons. We also break down useful tools, from signals and EAs to the best brokers for FX scalping in 2023.
What Is Scalping Forex?
The simple definition is that forex scalping is where traders aim to skim profits from small price movements across a large number of trades. Contrary to other forms of trading, the main goal of scalping forex is to accumulate multiple small wins over a few seconds to minutes, as opposed to a few larger winners over days or weeks.
Scalping is a popular strategy among investors who enjoy fast, exciting trading environments and have laser focus when it comes to charting analysis. As such, the merits and limitations between forex scalping vs day trading or swing trading are notably different and we will explore these later.
Since forex scalping takes advantage of minor changes over a short period, the typical expectation for traders is to gain up to 10 pips per trade, including the spread.
For this to be substantial by the end of the day, scalping is usually done in high volumes.
Below we look at some examples of common strategies and how to make money scalping forex. If you’re torn between short-term scalp trading or long-term forex investing, this tutorial also lists some key considerations to help you make that decision.
Scalping Forex Strategies
Whilst there are many different 24/5 forex scalping methods, we have covered two popular examples below that are based on the most common time intervals used: 1-minute (M1) and 5-minutes (M5). Other variations such as a 1-hour (H1) forex scalping strategy also exist.
These two scalping forex strategies are characterized by differing levels of acceptable profit or loss, as well as how many pips you can reasonably gain for each trade.
The best way to find out how to scalp trade and read pips using a forex strategy is to put them into practice in a demo account. This way, you can gain exposure to the FX market in real time without risking your cash.
1-Minute Scalping Strategy
The 1-minute strategy works well for beginners due to its relative simplicity. With that said, this forex strategy is still demanding and will require a strong level of concentration. Generally, you will be looking to profit around 5 pips per trade. Because of this low target, quantity is key and you may find yourself placing over 100 trades per day.
To put this strategy into practice, set your 1-minute chart timeframe and ensure that you are investing within the London and New York trading sessions when volatility is highest.
You can adjust your Stochastic Oscillator to 5,3,3 and set exponential moving averages (EMA) with periods of 50 and 100 to execute trades based on signals from the indicators.
For a long order, traders should wait for the 50-EMA to cross above the 100-EMA, indicating an uptrend, and then open a long position when the price retraces to the EMAs and the Stochastic indicator is above 20.
Conversely, for a short order, scalpers should wait for the 50-EMA to fall below the 100-EMA and the Stochastic indicator to fall below 80.
5-Minute Scalping Strategy
If you choose a 5-minute scalping forex strategy, you can use a 50-EMA and 100-EMA, along with a Moving Average Convergence Divergence (MACD) set at 12,26,9, and aim for a target of at least 10 pips per trade.
To open a long position, wait for the asset to trade above both EMAs, then enter when the price breaks above the 50-EMA by 10 pips or more and the MACD crosses to positive within the last five bars.
Set the initial stop at five bar low from the entry and exit in two halves: first at two times risk (moving the stop to breakeven), then again when the price breaks below 50-EMA by 10 pips.
If the price is simply trading between the two EMAs, then you should hold off from opening.
For a short trade, wait for the asset to be below both EMAs. Once it has broken below the 50-EMA by 10 pips or more, and once the MACD crosses to negative within the last five bars, then a short position can be opened.
Again, set the initial stop at the five bar high from the entry and exit the first half at two times risk, moving the stop to breakeven, and the remainder when the price breaks above the 50-EMA by 10 pips. Do not take the trade if the price is simply trading between the 50 and 100 EMA.
Scalping Forex Tools
Now that you have learned how to use scalping strategies in forex, there are some other useful features that can be advantageous if implemented properly. In fact, your 1-min or 5-min scalping forex trading system may well be ineffective without the use of charting features and indicators, plus in some cases, automated forex tools.
Since we are taking advantage of intricate price moves on small time frames, it is unsurprising that forex scalping is heavily reliant on daily chart patterns and indicators. Scalpers will typically use 1-minute (M1) up to 15-minute (M15) charts, though the latter is the less common.
Scalping forex indicators are widely available in popular trading platforms, such as MT4, with some custom indicators free to download from the platform’s marketplace.
Importantly, indicators can help to identify bullish and bearish zones in which you can buy or sell.
Before you start trading, it’s best to review what kinds of strategies and indicators will suit your investing style.
Make sure you understand the basics, including how to read candle wicks and Heiken Ashi charts. Many scalping strategies involve using moving averages, though other common forex indicators include envelopes, Bollinger Bands, Fibonacci retracements, and MACD. More advanced trading plans include scalping cycle forex indicators.
Some investors find it beneficial to recruit scalping forex robots into their trading plan, which are based on algorithms that scan the markets and produce buy/sell signals. In the MetaTrader 4 and 5 platforms, these are known as Expert Advisors (EAs).
A scalping bot will typically take into account a range of indicators when scanning the market, including moving averages and Relative Strength Index (RSI), though custom forex bots can be programmed accordingly.
Scalper robots and EAs can be free to download from some platforms, although paid bots are typically better in quality.
It’s also worth checking out review websites for comparisons of the best forex EA scalpers. You can also find useful scalping forex tips and robot trading ideas on community platforms.
Trading signals are produced through technical analysis and will indicate when to buy or sell an asset. Scalping forex signals can be distributed using a range of means, including SMS, email, within the trading platform, or via a social site such as Telegram.
Whilst signals can be a useful tool, they don’t suit everyone and their reliability is not guaranteed. Moreover, you cannot really be sure which signals you can trust, since they are provided by other traders. Unfortunately, the signals market is rife with traders who claim to offer the best forex scalping strategy with ‘90% wins’ via their signals.
A good tip is to only consider services provided by professionals who trade their own signals and offer their own live trading room. This will allow you to learn the ins and outs of the forex scalping strategy and pick up tips and testimonials from other investors.
Due to the small profits gained when scalping forex, traders should expect to use larger leverage than usual. However, this can boost your profits but it can also lead to significant losses. If you plan on using a higher leverage ratio, effective money management is important. One of the top rules of FX trading is that you should not risk more than you can afford to lose.
You may also want to pay attention to your risk-reward ratio but bear in mind it can be more difficult to maintain compared to other forms of trading.
This is because investors will often get stopped out in the majority of cases where the gap between their take profit and stop loss levels are narrow.
Pros Of Scalping Forex
Scalping the forex market certainly comes with its merits, depending on your personal preferences and trading goals.These include:
- Less risk exposure – Investing over a short-term time frame means that you can often avoid running into adverse events that can impede your trades.
- Frequency of trades – Scalping forex takes advantage of the fact that smaller price moves tend to occur more frequently than big ones.
- Profitability – Whilst individual profits can be small, they are quick and scalable through repetition.This means it is possible to gain substantial profits in the long run.
- Not reliant on fundamentals – Scalping forex requires generally less market knowledge than other forms of trading, as they don’t tend to play a significant role in short timeframes.
Cons Of Scalping Forex
There are some limitations that you should consider before you go ahead and open up your charts:
- Large deposit needed – Forex scalpers can only really make the most of small orders and fast trading by having continuous access to funds.
- Risky – In order to make a reasonable profit, investors typically do not follow the 2% risk management rule, making scalping riskier than other types of forex trading.
- High level of concentration needed – Traders need quick reflexes and mathematical skills in order to succeed in scalping forex.
- They also need to be able to handle a high-pressure environment.
- Time-consuming – Scalpers must be dedicated to monitoring their charts constantly, especially when using a 1-minute strategy.
How To Start Scalping Forex
Now that we’ve covered the basics, we can unpack the key steps on how to scalp in forex trading:
Find A Broker
It’s worth knowing that scalping is not allowed at some forex brokers, so make sure to eliminate these first.Ideally, brokers with a non-dealing desk STP or ECN execution system will be best for scalping forex strategies.Check the forex scalping brokers top list above.
The offering of assets is another consideration.Some traders scalp stocks, futures, gold, or popular indices like the US30, though these scalping trading systems can get rather technical.For example, Gamma scalping in forex options trading is a popular method for experienced investors.Beginners should probably stick to forex pairs until they have developed an effective system.
Forex scalpers should also consider the execution speed and quality, regulation and licensing, fund security, and educational tools, which we discuss below.
Before you sign-up and login, make sure to check which platforms are offered and whether they are available via web and mobile apps (iOS and APK).
Educate & Practice
Access to good quality research and training resources will make all the difference in mastering your scalping forex strategy.
A good broker will provide a variety of educational materials for scalping the forex market day and night in various formats.
This may include scalp 101 webinars and strategy videos for beginners, a blog, a forex academy, or even assistance through a community forum or discussion group. Some brokers also offer useful e-books and cheat sheets in PDF format, which you can download, but you can also easily find a scalping forex book to buy elsewhere online.
It is essential to utilize these resources throughout your trading journey, along with your practical training in a virtual account. A demo account is often the best way to determine if a broker is a good match. No matter if you are scalping forex using price action or technical analysis, you need to test your strategies and the broker’s platform features.
After registering for an account, you can open your charts and begin analyzing the forex markets. It is worth becoming acquainted with the forex asset you want to trade first to observe how the market behaves, such as major pairs with the US Dollar.
Then, you can start applying your indicators and graphical objects to map out volatility and trends.
Make sure you’re on a short time frame and that you are trading within the London and New York trading sessions for optimal volume and volatility.
If you are using a higher leverage ratio than normal, stop-loss and take-profit levels are particularly important. With that said, scalping forex can sometimes be an exception to this rule as scalping requires rapid trading where every second counts. As such, some traders will opt for manual scalping, whereby they manually close trades when they hit the desired levels of profit or loss.
Scalping Forex Tips
Learning how to be a forex scalper can be overwhelming for the inexperienced trader and mastering a good strategy will require discipline, patience, and a few good tips and tricks under your belt…
Use A Demo Account
Whether you’re scalping forex using a 1-minute or 5-minute chart, bear in mind that neither will be easy at first. Scalping forex strategies are high-intensity and require consistency. Note also that the examples provided above might work better for some forex assets than others, so it will take some trial and error to find the most accurate scalping strategy for you. This highlights the importance of utilizing a demo account at the start of your journey. A demo account is useful if you want to ‘try before you buy’ and does not require depositing any real funds before you sign up for a live account. You can also find numerous video tutorials online to guide you through the process, so be ready to take notes.
Pay Attention To Market Timing
Scalp forex trading relies on liquidity, so you will need to make sure you are trading at optimum times of the day.
The three main sessions for forex trading are London, Asia-Pacific, and North American.
The London/New York and London/Asian sessions have the most overlaps and offer the most trading activity. If you’re seeking high market volatility, you should also invest at the same times as institutional traders, banks, and funds, when the volume is high. This is usually in the morning after monetary policy and other news announcements have been made.
Consider Spreads & Transaction Costs
When looking for a forex scalping broker, pay attention to the spreads offered on the FX assets you wish to scalp. You will likely want to look for major currency pairs such as EUR/USD, as they typically have the lowest spreads (ideally below 1 pip) and are therefore the cheapest to trade.
To understand your transaction costs with scalping forex, you will need to check the spread, the value per pip, and your position size. If a broker offers spreads around 2 to 3 pips for majors, for example, you will need to consider the real worth of that trade. There may also be commission charges or other account fees to take into consideration.
Failing to take into consideration all the costs of investing will eat into your profits every day or even turn a profitable trade into a loss.
Trade The Most Liquid Pairs
Most forex scalping brokers offer these with the tightest spreads as they typically have the highest trading volumes.
If you’re a beginner, it’s also a good idea to start with just one pair before you move on to multiple assets.
News Reports Can Throw You Off
Market volatility can be created when certain announcements and reports are released, such as GDP or macroeconomic data.
These are usually followed by high levels of unpredictability where traders might look to make quick gains.
However, news reports can actually throw you off course as they typically only last up to 15 minutes before the prices start to revert back again.
Make sure to consider how your scalping forex strategy would cope in this 15 minute window, should any volatility occur.
Final Word On Scalping Forex
If you plan on scalping forex for a living, be aware of the risks involved and the commitment required to trade successfully. Scalping can be a shock to the system for beginners, especially if they’ve just moved on from the slower pace of day or swing trading, for example.
Nonetheless, once you’ve mastered your 1-minute or 5-minute forex charts with a range of indicators, your strategy will soon fall into place.
Whilst continued success is not guaranteed, paying attention to risk management should keep you within your safety limits.
See our list of the best forex scalping brokers in 2023 to get started today.
What Is Forex Scalping?
Forex scalping is the process of skimming small and frequent profits from a large number of trades, meaning positions are only ever open for a few seconds or minutes. Scalping forex should not be confused with a hedging strategy, whereby two opposing positions are opened as a means of minimizing losses if one of them begins to fail.
Is Scalping Forex Hard?
Yes, it can be challenging and risky because the small profit-per-trade means it is harder to reach a financial target. Beginners may need to combine practical learning with forex scalping education resources, online cheat sheets, YouTube tutorial videos and more, in order to scalp effectively.
Is Scalping Forex Legal?
Yes, scalping forex is a legal form of trading.
However, some brokers do not allow scalping if, for example, they are a dealing desk (market maker), or if they are located in a jurisdiction that does not allow scalping.
Is Scalping In Forex Profitable?
Scalping forex is profitable for traders who have good market experience and analytical skills. However, whilst it is possible to make profits every day, your gains can also be wiped out just as easily. This is because it can be difficult to close your positions quickly enough if the market suddenly moves against you.
What Is The Best Forex Scalping System?
Ideally, you will want to work with a 1 min or 5 min scalping forex strategy to take advantage of the small price moves in the market. The analysis technique you use will depend on your trading style. You can find a list of 24/5 methods, plus 1-minute and 5-minute forex scalping strategy PDF documents on numerous sources online.