What is Forex Scalping - Forex Scalping Techniques

What is Scalping in Forex Trading

Surely many traders are familiar with such concepts as "scalping", "to scalp", "scalper". In this article, we are going to reveal the basic principles of scalping, the advantages and disadvantages of this trading strategy, as well as the methods of its implementation. Let us recall that this article is for informational purposes only and does not encourage the choice of a particular style of trading.

We will not dive deep into the origins of the word “scalping”, as it’s actually a process of cutting the upper part of an enemy's head as a trophy practised by some North American Indians. In markets, scalping traders receive small “doses” of profit by making very frequent and, at the same time, very short transactions. This approach is the opposite of the profit growth method used by positional traders. Of course, scalping strategies imply frequent failures, and the scalper's professionalism becomes visible precisely with the ability to provide a greater number of successful transactions compared to losses. Scalping is a type of short-term trading, when orders remain open for a very short time: from a few seconds (even fractions of a second) to a few minutes. For this short period of time, ideally, the scalper manages to earn profits of several points, or pips. This is exactly what the scalping trading strategy is all about. Such a trading style involves a large number of deals, for instance, 50-100 transactions per day.

Successful scalping trading requires the following conditions:

• Exchange and broker fees should be low, spreads should also be tight
• Traded instrument should be highly liquid but moderately volatile
• Possibility to smoothly track current quotations in real time
• Big capital
• Strict discipline and a certain contingency plan. Caution in this case will not be superfluous.

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Forex scalping techniques

Scalping is performed by three main methods:

The classical method followers are guided by the analysis of the imbalance between the demand and supply of the traded asset in order to catch the slightest price fluctuations and not to miss potential profit. It is most commonly used in exchange-traded instruments.

The impulse method requires continuous monitoring and evaluation of all foreign markets, as according to it, all markets are interrelated, so changes and movements in one market/segment will certainly affect the other market/segment. It is important to note here the impact of political and economic events on the quotes of instruments.

The hybrid method captures the characteristics of the previous two, allowing the scalper to conduct a broader and more comprehensive analysis of the current market situation in general and the traded instrument in particular.

The functional base for scalping is the use of 1-minute and 5-minute Moving Averages, the simultaneous use of 50 EMA and 100 EM, Stochastic 5.3.3. Of course, the indicators and timeframes you can use are not limited to this, but it is important to bear in mind that the indicators should not be lagging since this is unacceptable when scalping.

Opportunities offered by scalping

Why do traders often prefer scalping to other trading strategies? There are several reasons for this:

• The less time an order is active, the less likely it is to suffer losses.
• Smaller fluctuations are more likely and frequent than larger movements, so the scalper is likely to "ride a wave" with a small amplitude rather than to wait for a larger price movement.
• Scaling can be profitable both as a main trading strategy and as an addition to other ones.
• A wide range of high-frequency and other automated robot assistants.

With proper management of the strategy, you can benefit from its advantages, such as a relatively low risk of losses due to very short transactions; high volatility at short intervals, providing traders with many ways to earn money; the opportunity to make a profit when the price moves both up and down.

However, you should definitely pay attention to the disadvantages of scalping, namely: too high emotional tension; the need to react quickly and make decisions instantly, the likelihood that a single failed transaction could nullify the gains from previous successful transactions; great competition from other avid scalpers, brokers and robots.

Why is it advantageous for a scalper to work with the IFC Markets?

• Tight spreads
• 5 decimal places in the quotation
• Instant Execution technology for your orders
• Highly volatile trading instruments (currencies, stocks, goods, etc.)

The scalping strategy in the forex market will be successful if you take it seriously and feel ready to devote enough time to trading and continuous monitoring of orders and quotes. Due to the peculiarity of frequent and quick opening and closing of orders, traders sometimes believe that scalping is a suitable strategy for beginners, but this often turns out to be wrong. Like any strategy, scalping requires careful consideration and evaluation before application, however, to gain and improve trading skills, you can first open a trading Demo account on our website and practice before real trading.