Scalping in the financial market is the smallest-term trading strategy or method that helps traders secure several small profits in quick succession. Moreover, the degree of risk also reduces considerably as traders short their securities quickly. Here, a trader does not hold assets for a longer time. Thus, the transaction continues until the day’s end. In addition, market players use technical analysis charting tools for deriving trading signals. Thus, scalping forex provides a wave of fresh air from traditional trading ways.
The method of trading currencies using scalping is exciting. It comes with many upsides but some disadvantages as well for forex traders. For small gains every time, a forex scalp trader eyes multiple trades in a session.
Know scalping with forex trading
Forex market is the burgeoning financial market worldwide that has an average transaction eclipsing USD 6.5 trillion among different currencies. As a result, investors and traders can book an offsetting trade. The profits and losses in the forex scalping get calculated by finding the difference between prices of entry and exit points of currencies.
For example, a Japanese trader buys a position of the US dollar at USD to JPY exchange rate of USD 1.1100 and sells the position at USD 1.1250. It would be a profit of 150 pips or 0.0150.
However, in scalping forex trading, where the holding term is small, the takeaway profit targets are usually 10 to 20 pips. Therefore, for maximising profits, one has to initiate several trades in a day.
The price fluctuation is the main key here. Thus, a trader needs to be pretty vigilant and eyes changes in the market. While swing trading lasts from weeks to several days and in a position trade, it might take a year to several months; the scalp trade lasts for a few moments to minutes.
It means a scalp trader should remain hooked to a chart for being in a position to be ready in the changing price movements with precisions. If a forex scalper is not focused, he/she may lose several opportunities to earn profits in the trading market.
Is forex trading through scalping profitable?
Forex trading through scalping strategy is absolutely profitable, undoubtedly. If a trader knows how to utilise it, there can be non-stop profits flourishing down the drain. For example, if the profit per pip is USD 10, the average profit for 10 pips would be USD 100. And if there are 15 trades a day, a trader would be making USD 1500 alone with forex trading.
The take-profit order can be automated here. Moreover, if the rate does not move as per the anticipation of forex traders, they are entitled to use a stop-loss order. Brokers like TradedWell, 101investing, Global TradeATF, ETFinance and IGMFX offer these services. Thus, when you are trading with such brokers, scalp trading becomes a cakewalk.
One needs to analyse the market properly and adhere to the significant time commitment to be a successful trader in scalp forex trading. One has to cover popular systems and see time durations constantly.
Scalping forex strategies for profits
A solid strategy works as a shield while a trader executes trades in forex scalping. It helps in averting the burning situation while trading. Moreover, the forex scalping practice is a fast and short-term activity. Thus, it leads to a strong focus in the market that translates into better and nuanced bidding. Therefore, one needs to be stoical and quick-witted while getting the best strategies in place.
Furthermore, traders can choose EUR/USD as the currency pair to avoid slippage because it has no dearth of liquidity and volumes.
In addition, the deployment of risk management ideas is equally essential for scalpers as scalping does not give you time to think. Thus, one has to be pro-active and ready with all permutations and combinations. Also, it is helpful if a trader can take the right measures before investing money in the market. So, the involvement of stop placement is imperative for market players. When the movement of the price goes in the opposite direction, the trade will get exited automatically.
However, if the trades are long or big, it gets managed by a support line, but this option is not available with scalping in forex. Stops are used above the level of resistance by a trader, precisely for shorts. The placement of the stop will depend on the aggression of a trader.
In hindsight, a trader should know and implement the 1 per cent rule. One should not lose more than one per cent of the account balance in one trading bid. So, it will save a lot of money. Also, profits will be better because the focus will remain on a strategy that can produce goals of trading money through scalping.
For instance, for anyone trading with USD 15,000 in the account, the maximum one would be risking losing is USD 150 on a single position. So, losses won’t go beyond that. The risk-reward ratio of 1:2 will always keep the trader afloat in profits. Thus the profit would be USD 300 on the investment of USD 15,000.
Hence, the trader would still make a profit of USD 150. Also, there is a five per cent rule limit that says a trader should not risk more than 5 per cent across all trades
Scalping strategy for forex
For a successful scalping strategy, a trader has to invest money for a short while and then exit the trade quickly. The process will go on several times until the day’s target set by a trader is reached.
Small gains are essential to sustain in the market because for every transaction, one may have to pay some charges as well. Technical analysis tools must be used for seeking assistance for entry and exit points. But before everything, a trader identifies the market condition and sees which strategy would fit the bill.
The multiple timeframe analysis can help in determining the larger picture of the price action. So, traders can ensure they do not go into disarray while trading in the market. Now, from there, the application of strategies will depend on whether the market is about to break out, trending or ranging.
Searching for a trend
When there’s a protracted move in the given direction of the market, the movement can be ascertained by traders. Through this, one can predict when the market will see an uptrend during higher highs and lower lows. On the other hand, the downtrend can be predicted with higher lows and lower lows. The broader a trend, the better it would be for traders. It would work like a barometer on a potential price action’s potential timeframe.
Scalping strategies can be applied to several markets, but given the nature of the forex, it offers a tailor-made situation. The price goes sideways here mostly. Scalpers also have a chance to be neutral when the price remains in a certain position compared to the trending markets.
It means taking buy positions near support levels and short them near the resistance levels. Breakouts also have the potential to offer fresh momentum for forex scalpers.
One minute scalping
If a trader is a beginner, the one-minute scalping technique works perfectly. It is relatively simple to execute. However, one will have to focus and stay concentrated on the market as it is demanding. The lack of concentration can deliver losses to a market player. Considering the generalised profit booking of 10 pips per trade, a trader can go for a hundred trades per day.
A trader has to put up a one-minute chart timeframe. Also, ensuring trading with New York and London trading sessions when the highest fluctuations or volatility can be fruitful. Moreover, one must set the EMA (exponential moving averages) period between 50 to 100 and the Stochastic Oscillator to 5,3,3.
These indicators will help acknowledge the short and long orders. For an uptrend to be likely, a trader would wait 50-EMA crossing the 100 EMA. The long will be opened when the Stochastic indicator goes above level 20, and the price reverts to the EMA.
On the other hand, a scalper would wait until the 50 EMA fell beneath the 100 EMA. Additionally, the Stochastic indicator should fall below 80.