Maybe you have just dipped your toe into the forex waters recently and now want to know how you can improve your overall strategy. If that is the case then you have come to the right place.
Our guide on using a forex scalping strategy will help you to better understand how you can take your forex trading to the next level. However, if you are still not confident about forex trading in general then we recommend that you check out our forex trading for beginners guide first before reading this one.
What is forex scalping?
So, what exactly is forex scalping? The key thing to understand here is how scalping differs from day trading. The two have similar principles but operate within very different time frames. A day trader for example will hold their position open on a trade for up to a couple of hours before closing out their position. Scalpers will hold their position open for a couple of minutes at most before closing the position. We’ll get to the differences between the two in more detail later on in our guide.
Essentially, scalpers are opening several positions within a multitude of different markets and closing their positions within a couple of minutes at most. Typically, these trade positions are closed within 1 or 2 minutes. The point is to make a large number of trades throughout the day while trying to capture small gains between 5 – 20 pips per trade.
You can take a manual approach to a forex scalping strategy which sees you sit by your computer observing trading signals and be fully in control of when to enter and exit short term trades. You can also go for an automated approach whereby a program will tell the trading software when to buy and when to sell. You’ll have to set certain parameters but essentially your hand would be off the wheel.
Experienced scalpers will usually increase their position size by trading on leverage but with greater leverage comes greater risks. In a strategy that is already fairly risky, trading on leverage simply magnifies those risks which are why it should only really be used by experienced traders.
There isn’t just one go-to forex scalping strategy as you can tweak and customise your approach to a significant degree by using exponential moving averages, a Bollinger band or by using support and resistance levels to your advantage. Furthermore, many new traders will get confused about the differences between forex scalping and day trading so we will highlight some of these key differences for you in the next section.
Differences between scalping and day trading
You should now have a better understanding of what a forex scalping strategy entails but if we gave you a rough definition of what day trading was right now you may not be able to tell the two apart. Here’s how they differ:
As we mentioned in the previous section, a forex scalping strategy means never leaving your positions open for too long. And by too long, we mean no longer than a couple of minutes at most. Your experienced forex traders are opening and closing positions within 2 minutes at most.
A day trader can open a trading position and leave it open for a few hours, sometimes even for the whole day. In comparison to a forex scalping strategy time frame, this may as well be an eternity. The two differ significantly when it comes to how long positions are held open.
This is not meant to serve as a complete deterrent for new traders to avoid a forex scalping strategy entirely but rather as a word of caution. A forex scalping strategy is only taken up by those traders who know the ins and outs of financial markets. They know what markets they are after, what signals to look for and when to close their trades. Essentially, they are experienced traders who know exactly what kind of profits they need to hit before exiting their trades.
This does not mean to say that day traders are inexperienced, merely that you will more often than not find that those traders using a forex scalping strategy have moved up in terms of their knowledgeability and strategic trading nous.
Day traders are not unfamiliar with trading on margin. It is certainly a common theme for day traders to trade with leverage to increase their trade position size. With that said, it is almost a given that traders who use a forex scalping strategy are using leverage as well. Your timeframe is short so anything that can help boost your profits to the range of pips you want to hit can and will be used by experienced forex scalping traders.
Advantages of a forex scalping strategy
There are a number of benefits to using a forex scalping strategy which is why so many experienced traders use it for their daily forex trading. There is no doubt that it is one of the forex strategies that work. Let’s take a look at some of the key advantages of a forex scalping strategy:
Small but regular profits:
The beauty of a forex scalping strategy is that you can close out on a number of profitable trades in a single day or even just a couple of hours. If you stay focused and hit your pip marks you can build up a worthwhile profit in a matter of hours.
Most effective with leverage:
Trading with leverage can go both ways in terms of benefits and negatives but with a forex scalping strategy, leverage can be very effective. As you only need the smallest of price movements in the market to make a profit with your forex scalping strategy, a healthy amount of leverage will increase the seemingly small profits by a significant amount. The right amount to leverage with the right forex trades can lead to a steady stream of profit.
Possibility for lower risk:
This will depend on the types of trades you are expecting but a forex scalping strategy can facilitate risk-averse trades. This is due to the fact that because you are making so many trades in the day, they are typically much smaller in size, even with leverage. So, your risk for losing out on one of two trades is not very high especially when you are implementing stop/loss orders.
Disadvantages of a forex scalping strategy
While forex strategies scalping can lead to short term profits it is not without its downsides. Here are a couple of things to keep in mind before you decide to pursue a forex scalping strategy:
High trading costs:
Unless you are on a broker that we don’t know about (highly unlikely) then you are going to be subject to high trading costs. This is because you will be opening and closing a number of different trades throughout the day. As such, you’ll be paying frequent position entry costs on your trades. You may even have to pay commission on these trades depending on how the broker operates its fees. You can try your best to get around this issue by checking out our guide on the best forex broker in Australia.
Focus required at all times
Look, it’s no surprise that when you are making several different trades across a number of different markets in the space of a few minutes at most that you are going to need to stay on top of your game. If you are taking a manual approach to your forex scalping strategy then you’ll need to stay focused at all times while you are trading. A loss in focus is the number one threat to your potential profits. This can be very taxing.
Top tips for a forex scalping strategy
We couldn’t possibly send you on your way from our guide without first giving you a few top tips to take with you. A forex scalping strategy can be daunting at first but with a few key pieces of advice, you can start to trade with this strategy more confidently.
Choose currency pairs with the lowest spreads
The whole point of a forex strategies scalping is to make small profits from a number of different trades. So, in order to give yourself the best chance to do so, you need to try and avoid the currency pairs with large spreads. The margins alone are going to eat into your potential payouts. Give yourself the best chance to build your bankroll by sticking to lower average spreads with your trades. We can help you in this regard if you feel like checking out our guide on the best low spread forex broker in Australia right now.
Look for higher volatility
A forex scalping strategy is looking to make quick gains in a matter of minutes sometimes even seconds. That is why a currency pair with high volatility is an appealing option as you can hit your pip goals with ease. This volatility does come with its own risk but it is the perfect aspect to look out for as the more stable currency pairs can take a few hours to reach the desired point for you to close out your trade. And that would defeat the purpose of a forex scalping strategy entirely.
There are ample traders who fall prey to this. Once you have executed a few successful scalping trades you then throw your earnings at another couple of “quick profit” trades only to lose what you have built up. Stay focused and continue to do your research, there is little room for gamblers in a forex scalping strategy as you will ultimately be found wanting at some point or another.
Finding the right forex scalping broker
Now that you have an idea of what a forex scalping strategy is, you will need a platform that facilitates this for you. Not all brokers allow you to use a forex scalping strategy so it can be tough to find the right broker on your own.
That is where we step in, we have conducted countless broker reviews that detail everything from what that broker has to offer to what their spreads and account fee are. We save you countless hours that you might have wasted searching the internet yourself. Our broker reviews are objective and unbiased, giving you a clear look at whether or not you can use your new-found forex scalping strategy on these sites.
Head over to Wetten where we give you tons of information like how to trade forex in Australia or where you can find the best forex demo account. You can find tons more useful guides and reviews on our site that can help you to better understand the lay of the land when it comes to forex trading.
You should now have a much better grasp of what a forex scalping strategy entails. It is a forex trading strategy that can appear to be a little bit confusing at first but as you can see, it’s actually fairly straightforward. What you need to remember is that a forex scalping strategy is all about getting in and out of a trade quickly and aiming for a profit of anywhere between 5-20 pips. The trick with this is to never gamble, always do some research before the day kicks off and never throw your bankroll away on one trade you think is a “guarantee” either.
If you want to learn a little more about forex trading Australia before you implement this strategy just head to our Wetten website. You can also take a look at our guide on forex hedging strategies to keep adding to your arsenal of trading knowledge. Whatever you need to know, we have got you covered.
Forex Scalping Strategies FAQ
❓What is forex scalping?
Here at Wetten, we want to shed some light on what forex scalping is so that you can add another tool to your trading kit. A forex scalping strategy can be a little tricky to understand at first but with our forex scalping strategy guide, you’ll have the ins and outs of the strategy down within a couple of minutes. We give you a simple breakdown of what a forex scalping strategy is and how you can go about using it yourself.
✔️ Is it easy to make a profit with a forex scalping strategy?
Making a straight profit with any trading strategy is never a given but there are some that are easier than others to execute. Our forex scalping strategy guide will give you some insight into what the success rate is of the trading strategy and whether or not it is going to be worth your while to use. Like most strategies, it depends on what kind of trader you are. Our guide will give you an indication about whether or not a forex scalping strategy is going to help you make steady profits.
⚖️ Do all brokers allow you to use forex strategies scalping?
Some brokers do have hang-ups about certain trading strategies being used on their sites. Our forex scalping strategy guide will give you a breakdown of how the broker’s typically felt about this strategy and whether or not you can use it freely on most of these platforms. You’ll know if the juice is worth the squeeze when using a forex scalping strategy.
👨🏫 Are there specific types of forex strategies scalping?
Our guide on forex scalping strategies will shed some light on whether or not there is more than one type of forex scalping strategy. This information is important as more often than not you’ll find that these types of strategies can be tailored to suit your trading style or needs. By the end of our forex scalping strategy guide, you’ll have an idea about whether or not there is a specific forex scalping strategy that is going to benefit you.
📗 Can anyone use a forex strategies scalping?
Typically speaking, anyone can use any trading strategy of their choosing. It’s not so much a question of can you use a forex scalping strategy but rather, should you be using it? Our guide takes a look at what kind of experience you are going to need to be able to properly execute a forex scalping strategy. We’ll give you some insight into whether or not it is novice trader friendly or if it is strictly for the weathered forex traders.