What is Scalping in Forex?
Scalping refers to trading currency pairs in the forex market based on real-time analysis. With forex scalping, you hold a position for a very short period of time and close it to make a small profit. Since scalping involves entering and exiting the market quickly to make small trades with considerably less capital, it is perfect for forex trading beginners. Although, forex scalping does require a competitive nature, high discipline, and decisiveness from forex traders. Let's take a look at what forex scalping strategy includes:
What is Forex Scalping Strategy?
Forex Scalping Strategy involves placing multiple trades in a single day and benefits from buying and selling currency pairs in a short duration. Its primary purpose is to profit from small price movements to make significant profits. Forex scalpers hold a position for only a few minutes or even seconds to take advantage of price fluctuations. With Forex Scalping Strategy, you should aim for 5-10 pips (percentage in points) from every single position you hold.
Top Five Forex Scalping Strategies
The top five Forex Scalping Strategies originate from the best forex indicators for scalping.
1. Relative Strength Index Scalping Strategy (RSI)
The Relative Strength Index is a profitable forex scalping strategy as it helps you find the ideal entry and exit points and predict future market movement to place trades at the right positions.
- Whenever the RSI falls below 30, it indicates an upward market trend and sends traders a signal to enter the market and buy more of the currency pair to maximise profits.
- When the RSI moves beyond 70, it indicates a downward trend and sends a signal to traders to exit the market and sell more of the currency pair to minimise losses.
2. Moving Averages (MA) Scalping Strategy
Using two short-term moving averages (MA) and one long-term moving average can help scalpers profit in the forex market. For example, suppose you are trading USD/EUR with one 20-period MA, one 50-period MA and one 200-period MA; you will look for the short term MAs to cross the long term MA from either above or below.
- If the 20-period MA crosses the 50-period MA from above, it suggests traders place market orders in the market’s direction. This means, if there is an uptrend, it signals traders to place more buy orders, and if there is a downtrend, it signals traders to place more sell orders.
- Similarly, if the 200-period MA starts falling, the traders receive a signal to short their trade as soon as the 200-period MA crosses the 20-period MA and 50-period MA from below.
3. Parabolic Stop and Reversal (SAR) Scalping Strategy
When you scalp with the Parabolic Stop and Reversal (SAR) strategy, you are given the current market trend and ideal entry and exit points for the same trend. This profitable forex scalping strategy involves placing several dots below and above the currency pair price, indicating bullish and bearish market phases.
- Dots below the currency pair price indicates a bullish market phase that shows a continued uptrend, signalling traders to place buy orders for maximum potential profits.
- Dots above the currency pair price indicates a bearish market phase that shows a continued downtrend, signalling traders to place sell orders for minimum potential losses.
- Whenever the position of the dots changes, it indicates a trend reversal and helps traders identify entry and exit points.
4. Stochastic Oscillator Scalping Strategy
Scalpers use the Stochastic Oscillator to compare currency pair prices with its range prices and take better trading positions throughout the day. The Stochastic Oscillator captures the trending market direction and also provides potential market turning/reversal points to let the trader know when to enter and when to exit the market.
- If the currency pair price trades near to either of the extreme points of the price range, it signals a trend reversal.
- Currency pairs trending near the lowest price in the range signal an upward market trend reversal, suggesting traders to buy more of the currency pair to maximise returns.
- Currency pairs trending near to the highest price in the range signal a downward market trend reversal, suggesting traders to sell more of the currency pair to minimise risk.
5. Bollinger Bands Scalping Strategy
Bollinger bands are one of the best trading indicators for scalping as they enable scalpers to trade in volatile markets since all the positions are so rapid. The Bollinger bands scalping strategy helps traders identify when the market is going to reverse, providing them with the ideal exit and entry price levels.
- As soon as the currency pair price touches the upper Bollinger bands, it sends traders a signal to close the position and exit the market.
- As soon as the currency pair price touches the lower Bollinger band, it sends traders a signal to open a position and enter the market.
What is price action scalping strategy ?
The price action scalping strategy only focuses on the currency pair’s current price action and ignores all fundamental factors like economic conditions and political instability that could affect the currency pair’s prices. Scalpers monitor and analyse currency pair price charts in a particular time period to gather historical and current price behaviours that help them determine potential future price actions. The difference between a scalping trading strategy and a price action scalping strategy is that a scalping strategy only focuses on placing multiple orders during the day to profit from the small price changes. In contrast, the price action scalping strategy enables traders to place forex orders purely based on the currency pair’s price behaviour at that particular time. If the prices increase continuously, traders generally hold onto the trade for some time. They do not place hundreds of small orders right away and rather wait for more than a regular scalper trader in order to benefit from the significant price jump in a price action scalping strategy. Hence, the former strategy requires monitoring the current price action to take trading decisions. For example, let us consider that you wish to trade USD/EUR with a price action scalping strategy. The currency pair is currently trading at 4, witnessing an uptrend. The resistance level is identified at 5.5, and the continued uptrend provides you with the opportunity to long the trade as the prices increase. You enter your first position at 4, and a few minutes later, the price increases to 4.3; you sell your first position to profit from the small change. The price continues increasing to 4.5, and at this point, you place another long position with an expectation of the prices rising further. The currency pair reaches a rate of 5 in the next one hour, and you sell the entire trade to profit from the price change. The currency pair falls temporarily to a level of 4, where you place another long order as you expect the market to rise again. The currency pair continues increasing thereon, and within the next one hour, the currency pair’s resistance level is broken, and prices shoot up to 7 before the trading day ends. You exit the trade at this point to profit from the uptrend and close the trade before the market closes.
Scalping vs day trading
Scalping occurs when you only hold a position for a few minutes or seconds. You place multiple orders during a day, one after the other, to profit from the small price changes. Day trading, on the other hand, involves placing only a few trades every day. You hold each trade for a few hours to benefit from the significant price changes. Day traders do not need to spend much time on each trade. The only similarity between scalpers and day traders is that both do not keep any trades open overnight and close all orders before the market closes.
Scalping vs swing trading
In swing trading, each trade needs to be held for a few days, weeks and even months to gain significant profits, which makes it a slower trading strategy than scalping. Trades are kept open overnight in swing trading to benefit from larger price movements. Unlike scalping, you don’t need to open multiple positions in one single day and trades can be spread out evenly to minimise risk.
What is a High-frequency scalping strategy?
A high-frequency forex scalping strategy is one of the fast scalping strategies that include placing several large size trades within seconds to capture even the slightest price fluctuations. High-frequency scalpers trade in highly volatile markets and use automated systems or software that help them enter and exit hundreds and thousands of trades within a few seconds or minutes. This strategy is also known as fast-paced algorithmic trading, where computer programs are used to buy and sell currency pairs. High-frequency scalpers’ main objective is to capture micro profits in thousands of trades so that they are able to earn a significant amount before the trading day ends. For example, an uncertainty between two countries, like the United Kingdom continuing in the European Union in 2019 before Brexit, led to an immense price fluctuation of the British pound sterling. High-frequency scalpers used computer systems that placed long and short orders throughout the day in the volatile market to profit from the highly fluctuating value of the GBP.
What is multiple chart scalping?
Multiple chart scalping refers to the forex scalping technique of using two or more chart frames together to calculate in which direction the currency pair is moving. Using multiple charts helps in identifying strong trends based on which scalpers place multiple orders. The traders begin multiple chart scalping by monitoring a reference chart first, which is usually the largest time graph of either 30-minutes or 1-hour. Once the trader decides what reference chart they want to use, a trend is identified using a technical indicator like moving averages. After receiving a trend direction, scalpers can place long or short orders, depending on if the market is moving upwards or downwards respectively, on their initial execution chart. The initial execution chart is a minor time frame chart, like a five-minute chart that allows traders to profit from minor price fluctuations that the reference chart confirms.
- Traders can enter a long position when both the reference and execution chart signal an uptrend.
- Traders can enter a short position when both the reference and execution chart signals a downtrend.
- Traders can pause opening any new positions when the reference chart and execution chart signal opposite trend directions.
How is forex scalping different from other strategies?
Scalping is one unique strategy in forex that enables traders to sell winning trades as quickly as the losing trades. Almost all forex strategies come under the buy and hold technique, wherein the traders sell the trade only when it reaches a significant price level. Similar is not the case with scalping, as scalpers do not wait for the currency pair prices to reach a specific target and instead open hundreds and thousands of multiple positions in the market’s direction.
Take multiple positions in a single trading day with these Forex Scalping Strategies
The Forex Scalping Strategies help you place several trade orders in a single day and reap significant profits. Even the slightest of the price movements help you gather decent profits through the process of scalping. Blueberry Markets provides you with real-time charts to help you make profitable forex trading decisions. Start by opening up a live trading account or try our risk-free demo account.
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