What is Forex scalping?
What is scalping? How to apply scalping on Forex and cryptocurrency? How much can you earn on scalping in trading? What indicators and scalping strategies can be used? How to choose a broker for scalping?
Many people try their hand at the foreign exchange market by investing in various financial instruments. Forex trading is an effective way to increase the accumulated funds. In the Forex market, transactions are made based on the exchange rate of currency pairs. Before you start trading, you should familiarize yourself with strategies that can help increase profits, for example, with scalping. In this article you will learn what Forex scalping is, what indicators and scalping strategies can be used, and how much you can earn on scalping in trading.
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What is scalping?
Scalping comes from the Latin scalpere – "to cut". This is one of the investment strategies used in the foreign exchange market. Scalping is favored by high volatility and liquidity of the market.
Scalping is a quick way to make a small profit on price movements. This strategy is used on small timeframes M1, M5 and M15.
How to apply scalping on Forex?
Scalping is a popular method among individual traders. This strategy is not recommended for novice traders, as it requires a quick reaction while making trading decisions. In addition, you should know which currency pairs are the most profitable. Most traders use macroeconomic data, financial news, technical analysis, candlestick and graphical patterns.
Scalping on Forex is assumedremember that a trader makes a lot of trades in a very short time. As with any investment, scalpers open long (buy) and short (sell) positions. These positions are closed by concluding a reverse transaction: a sale closes a long position, and a purchase closes a short transaction. In Forex scalping, a position is usually held for several minutes or even seconds. It is very rare for a transaction to be held for several hours.
In addition, scalping has more potential trading opportunities than other strategies in the financial markets. Therefore, Forex scalping is most effective on volatile currency pairs. Here are the main currency pairs for scalping:
See also what brokers with a low spread are.
How much can you earn on scalping in trading?
Scalping requires patience, as the return on this strategy is small. Income is created by making a lot of transactions during the day. Traders can act on the edge of risk when opening large volumes of transactions, since such activity can be associated with large losses.
It is believed that scalping on Forex is profitable when you earn from 2 to 15 points on one transaction, that is, several tens of dollars. Therefore, it is necessary to have a large deposit so that you can open transactions taking into account your money management. Of course, you can do with a minimum deposit, taking into account the large leverage provided by a Forex broker, but in this case the risks will be quite high.
You can scalp at any time, but it is best to do scalping in the London and New York trading sessions, because they have the highest liquidity and volatility. The risk of scalping in Forex also lies in a sharp change in the exchange rate, for example, during the release of important economic news. It may happen that the trader's deposit suddenly added a few percent or lost the same amount.
What scalping strategies can be used?
Technical analysis must be present in scalping. It is recommended to open trades only according to the trend. To do this, you can use trend lines and support/resistance levels. In addition, you can use indicators for scalping. For example, Moving Average will show the trend direction, and Stochastic Oscillator will determine the overbought / oversold zones and help you find the most optimal entry into the transaction.
You can also use candlestick patterns, for example, the Price Action strategy. Don't forget to follow the global trend. For example, if you are trading on the M1 or M5 timeframe, then open trades only in the direction of the trend on M15 or H1. This will help to avoid false signals and unnecessary losses. Also, you should always remember to set a stop loss and take profit. There are even special utilities that automatically set stop loss and take profit when opening a trade, which saves time and simplifies trading.
Trading on the news is another scalping method. This is a short-term transaction to buy or sell a currency at the time of an important news release, for example, the publication of a GDP report or a change in the interest rate. Trading on the news can bring big profits, but it also involves high risks, so it is not suitable for novice traders. We recommend beginners to refrain from Forex trading during the time of the news release. An economic calendar will help you with this, in which important news in the world of finance is announced.
Scalper advisors can help novice traders. Expert Advisors are special programs that trade in automatic mode. They are not characterized by emotions and fatigue. They open and close transactions based on the prescribed algorithm in the program code. The effectiveness of Expert Advisors can be checked on the history in the strategy tester of the trading terminal. However, it should always be remembered that past results do not guarantee future profits.
See also what brokers exist with Expert Advisor trading.
How to choose a broker for scalping?
If you are going to use scalping on Forex, you should choose the right broker. Not all brokerage companies allow you to play this strategy on the foreign exchange market. Some of them may cancel profitable trades that lasted less than one minute. To prevent this from happening, carefully read the broker's trading conditions or contact technical support before embarking on a scalping strategy.
A good scalping broker should offer competitive prices and narrow spreads, as well as fast and high-quality execution of orders. The speed of order execution is especially important because milliseconds usually determine the price of opening a position. In addition, brokerage activities should be regulated by reliable financial authorities such as the FCA, ASIC or CySEC. It should also be clarified whether the broker maintains segregated accounts, and whether it stores customer funds in a reliable bank. To test the broker, you can test your scalping strategy on a demo account or on a real account.
Scalping is often used in highly liquid financial markets, such as the cryptocurrency market. It, as with Forex trading, will require a lot of capital, because the profit from one position is usually minimal. The same goes with time, you can invest in intervals of different lengths. Daily price fluctuations in the cryptocurrency market can reach several percent. It requires a lot of discipline and practice to get the minimum profit at each session.
See also what kind of brokers there are with cryptocurrency trading.
Forex scalping involves spending a significant amount of time in front of a computer. On average, a trader manually conducts from 30 to 100 transactions per day. Scalping should be started in a good psychological and physical condition, because it requires a lot of concentration. If you feel signs of fatigue, this can lead to incorrect decisions and a delayed reaction to changes in the foreign exchange market.
For inexperienced traders, this way of trading can be very stressful and lead to unnecessary losses. Technical indicators help simplify trading decisions, and Forex scalping advisors fully automate the trading process. This allows you to turn your scalping strategy into passive income over time.
It should be noted that this strategy is a universal method that can be applied in other financial markets, for example, on the crypto exchange. Nevertheless, scalping is very popular in the Forex currency market. Beginners who want to use this trading method should be trained in scalping. During trading, it is necessary to monitor the price changes of currency pairs, as well as use various proven strategies. Over time, by implementing the Forex scalping mechanism, you can develop an individual technique that will bring good profit in the long run.
Read also the article "What are CFD contracts on Forex".