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The Ultimate Forex Scalping Strategy Guide

September 21, 2020 13:00 UTC
Reading time: 27 minutes

Even if you are a complete beginner in trading, you will have undoubtedly come across the term "scalping" at some point. This article will provide you with all the basic information behind this concept. You will learn the definition of Forex scalping, how it works and how to select the best system. We will also take a look at strategies and techniques, providing a detailed explanation of the popular 1-minute forex scalping strategy, and much, much more!

Forex Scalping Strategy Guide

What Is Scalping?

Scalping is a method of trading based on real-time technical analysis. When it comes to Forex trading, scalping generally refers to making a large number of trades that each produce small profits. Rather than holding a position for several hours, days or weeks, the main goal of scalping is to make a profit in as little as minutes, gaining a few pips at a time.

The FX market is the most liquid and the most volatile market around. Forex scalpers try to squeeze every possible opportunity out of these fluctuations in foreign exchange quotes, by opening and closing trades with just a few pips of profit.

In other words, scalping the forex market is simply taking advantage of the minor changes in the price of an asset, usually performed over a very short period of time.

Scalping is quite a popular style for many traders, as it creates a lot of trading opportunities within the same day. Its popularity is largely down to the fact that, in most strategies, there are high chances of getting entry signals. During the scalping process, a trader usually does not expect to gain more than 10 pips, or to lose more than 7 pips per trade, including the spread.

In order for those 10 pip gains to add up to a substantial profit, scalping is usually performed with high volumes. This means many Forex scalpers do not tend to follow the common 2% risk management rule, but are instead trading much higher volumes during their trading sessions.

By being consistent with this process, they can stand to benefit from stable, consistent profits. There are two different methods of scalping - manual and automated. In the manual system, scalpers need to sit in front of their computer constantly, so they can observe market movements in order to open and close their positions. On the other hand, with an automated system, a trader can create a program to follow a set strategy. The program will then carry out trades on behalf of the trader..

To learn more about the pros and cons of Forex scalping, as well as the best and worst times to scalp, watch our free webinar video here:

Is Scalping a Suitable Style For You?

Deciding whether scalping is a suitable trading style for you, will largely depend on how much time you are willing to dedicate to trading. Forex scalping requires constant analysis and the placement of multiple orders, which can end up being as demanding as a full-time job. Furthermore, there are only a few hours a day when you can scalp currency pairs.

After time availability, the next most important thing is being able to think on your feet.

For a Forex scalping strategy to be profitable, you must quickly predict where the market will go, and then open and close positions within a matter of seconds. When making these trading forecasts, keep in mind that herd psychology is integral to market movements.

A perfect example of this is the sharp appreciation that certain currencies enjoyed amid China's expansion in the early 2000s. During the first decade of this millennium, both the Australian Dollar (AUD) and the Canadian Dollar (CAD) surged close to 40% against the US Dollar. Australia and Canada are commodity exporters, which is why their currencies thrive when China enjoys robust growth. As a result, some Forex traders take long positions in the AUD and/or CAD when China's economy is expanding rapidly.

Aside from predicting market direction, traders interested in implementing Forex scalping strategies must be able to accept losses. This is particularly important when trading with leverage, which, as well as potentially amplifying profits, can have the same effect on losses. While your main task is to generate more profitable positions than losing ones, you must also know how to exit trades when they are not working out.

If you think Forex scalping is for you, keep reading to learn about the best forex scalping strategies and techniques.

If you want to jump right in and begin scalping immediately, you can practice trading completely risk-free with a FREE demo trading account. Click the banner below to open your FREE demo account today!

Demo Account with Admiral Markets

How to Scalp in Forex

Now that you have an understanding of the fundamental aspects of scalping, let's take a closer look at its practical application.

In general, most traders scalp currency pairs using a time frame between 1 and 15 minutes. Whilst there is not really a "best" time frame for scalping, the 15 minute timeframe does tend to be the least popular with Forex scalping strategies. Both 1 minute and 5 minute timeframes are the most common.

Your acceptable profit or loss per trade will depend on the time frame that you are using. With 1 minute scalping you would probably be looking for a profit of around 5 pips per trade, whereas a 5 minute scalp could probably provide you with a realistic target of 10 pips per trade. When it comes to selecting the currency pairs for your winning Forex scalping strategy, it is vital to pick up a pair that is volatile, so that you are more likely to see a high number of moves.

If you go for a currency pair with low intraday volatility, you could end up acquiring an asset and waiting for minutes, if not hours, for the price to change. That being said, volatility should not be the only thing you are looking at when choosing a currency pair. You should also look for a pair that is cheap to trade - in other words, the one that could provide you with the lowest possible spread. As a scalper, the spread will lie between 10% to 30% of your income, therefore, it goes without saying that you want this value to be as low as possible.

You will need to develop a trading strategy based on technical indicators and pick up a currency pair with the right level of volatility and favourable trading conditions. After this, once you see an entry signal, you have to go for the trade, and if you see an exit signal, or you have come to an acceptable level of profit, you can close your trade. What is also important in scalping is stop-loss (SL) and take-profit (TP) management.

While it is usually always recommended to use an SL and TP when trading, scalping may be an exception to this rule. The reason is simple - you cannot waste time executing your trades because every second matters. You may, of course, set SL and TP levels after you have opened a trade, yet many traders will scalp manually, meaning they will manually close trades when they hit the maximum acceptable loss or the desired profit, rather than setting automated SL or TP levels.

Now let's focus on the spread part of the trading. Let's assume a broker has no commission attached to your trading account, but the spread on EUR/USD is 2 pips on average.

When trading 1 lot of EUR/USD, the value of a pip is USD 10. This means your direct expense would be about USD 20 by the time you opened a position. If you are looking for a 5 pip gain per trade (USD 50), this means that you would actually have to go up 7 pips from your initial starting price (7 pips - 2 pip spread = 5 pips). That is nearly 50% more pips. This is why you should only scalp the pairs with the lowest possible spreads.

Another important aspect of being a successful Forex scalper is to choose the best execution system. 'Execution' refers to the speed at which trades are executed. In other words, the speed at which, once you say you want to enter a trade, the trade is actually opened on the live market. In volatile markets, prices can change very quickly, which means your trade might open at a different price to what you had originally planned. When you are relying on the tiny profits of scalping, this can make a big difference.

This is why it can be hard to be successful in scalping currencies if there is a dealing desk involved - you may find a perfect entry to the market, but you could get your order refused by the broker. The situation may get even worse when you try to close your trade and the broker does not allow it, which can sometimes be deadly for your trading account. This is why it is vital to choose a broker that offers STP or ECN execution, and is, therefore, able to accommodate scalping.

If you want to apply your knowledge of scalping to the market, a live account with Admiral Markets is the perfect place for you to do that! Trade Forex & CFDs on 80+ currencies, choosing from a range of Forex majors, Forex minors, and exotic currency pairs, with access to the latest technical analysis and trading information. Trade the right way, open your live account now by clicking the banner below!

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The Best Times (To Avoid) For Scalping

Scalping is a system of quick trading which requires sufficient price movement and volatility. The highest levels of volume and liquidity occur in the London (08:00 - 17:00 GMT) and New York (13:00 - 22:00 GMT) trading sessions, which make them particularly attractive for most scalpers. But it also depends on the type of scalping strategy that you are using.

Trading false breakouts can sometimes work well in an Asian trading session, as the price typically moves up and down in a relatively narrow range.

Scalpers should be mentally fit and focused when scalping. Any indication of tiredness, illness or distraction presents reason to stop trading and take a break.

You should keep in mind that CFD and Forex scalping is not a trading style that is suitable for everybody. Some traders will thrive with it, but others perform much better over longer time periods, such as swing traders. As well as sufficient price volatility, as we have already mentioned, it is critical to have low costs when scalping. Usually, the lowest spreads are offered at times where there are higher volumes of trading.

GBPUSD M5 Forex Trading TimesDepicted: Admiral Markets MetaTrader 5 - GBPUSD M5 Chart. Date Range: 26 August 2020 - 28 August 2020. Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

Choosing the Best Broker for Scalping

You may be surprised to learn that there are some brokers that do not allow scalping and prevent you from closing trades that last for less than three minutes or so. Therefore, when it comes to selecting the best Forex & CFD broker for your scalping strategy, the obvious first step will be to eliminate any brokers which do not allow scalping inside their system. As mentioned earlier in this article, you should also generally avoid all of the brokers that cannot provide you with either an STP or an ECN execution system, as scalping Forex with a dealing desk may hinder your ability.

Now, when you have a smaller list of available brokers, you should start looking at the instruments for your trading and their pricing amongst the brokers. Many brokers do have some commissions. This is not necessarily a bad thing - you just need to include the commission into your calculations when you try to determine the cheapest broker. Nevertheless, pricing should not be the only point that matters when you are selecting a broker that will enable you to scalp Forex. Finding a good, reliable broker is a crucial step, not just for scalpers, but for all types of traders. Several aspects should be taken into consideration before selecting your broker - here are the key criteria:

  • Competitive spreads and costs
  • High-speed execution
  • Order execution quality
  • Regulated by key financial authorities such as the FCA (Financial Conduct Authority)
  • Secured funds with reliable bank(s)

As well as all of the above, Admiral Markets also offers the following:

  • Spreads starting from 0 pips on Forex major pairs
  • Market execution with no re-quotes
  • Low slippage and rejection rates
  • Deep liquidity from top-tier liquidity providers
  • High execution speeds from 4 milliseconds
  • No restrictions on trading styles or strategies
  • Advanced tools and platform options
  • Education and webinars
  • Analysis of the financial markets

Scalpers who are new to trading often do not realise that execution is a key factor, besides the presence of competitive spreads. The best way to find out whether a broker is a good match for you is by simply testing your strategy via a Demo or live account.

The Best Platform for Scalping

The best trading platform for CFD and Forex scalping is arguably MetaTrader 5, with the MetaTrader Supreme Edition plugin. Traders can trade on a wide range of other financial instruments, including Forex, CFDs, CFDs on commodities, and stock indices. The MetaTrader platform offers a charting platform that is not only easy to use, but also simple to navigate. The MetaTrader Supreme Edition plugin offers a long list of extra indicators and tools which are not a standard part of the MetaTrader package.

These additional features include the mini terminal, the trade terminal, the tick chart trader, the trading simulator, the sentiment trader, mini charts (perfect for multiple time frame analysis) and an enhanced version of the 1-click trading terminal (which is particularly useful for those looking to scalp the markets). As well as all these features, MetaTrader Supreme Edition also comes with a range of extra technical indicators including the Keltner Channel and Pivot Points indicators. Click the banner below to receive your FREE MetaTrader Supreme Edition download!

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Forex Scalping Strategies

Traders must use trading systems to achieve a consistent approach. Although this is true for all trading styles, it is even more so for scalping, due to the speed of trade setups and the need to make quick decisions. Scalpers can earn as little as 2 to 10 pips for a setup. The important consideration is whether the small wins add up to more profit than what is lost by losing trades.

This is how it looks from a mathematical point of view:

  • Expectancy per trade setup = (Win percentage multiplied by average win) - (loss percentage multiplied by average loss)

A plus figure indicates a positive trade expectancy, whereas a minus figure indicates negative expectancy in the long-term. Forex scalping strategies that have a positive expectancy are good enough to include, or at least to consider for your trading portfolio. On the other hand, scalping strategies that create negative expectancy are not worth it.

As well as following a strategy, when scalping the financial markets, make sure to scan the charts for the following six aspects:

  • Current and expected price volatility
  • Current spread
  • Range or trend (plus direction)
  • Key support and resistance levels
  • Other time frames for key levels
  • Economic calendar for data, news, and press conferences

Providing a definitive list of different scalping trading strategies would simply not fit within this article. To keep things compact and readable, in the next few sections, we will provide a summary of different types of forex scalping methods, before digging deeper into one of the most popular strategies - the 1-minute Forex scalping strategy.

Comparing Time Frames

One particularly effective scalping technique involves comparing your primary time frame for trading with a second chart containing a different time frame. For example, if you use a 1-minute time frame to scalp currency pairs, you could then consult a 5-minute chart to check any signals that come up.

News Fades

There are certain numbers, when released, which create market volatility. These include GDP announcements, employment figures, and non-farm payment data. Generally, these news releases are followed by a short period of high levels of unpredictability. It is in these periods that some traders will move to make quick gains. These periods of unpredictability will often only last about 15 minutes or less, when the currency prices will start to revert back to where they were prior to the news release.

Inside Day Breakout

Intraday patterns apply to candlesticks, whereby today's high and low range is between the increasing and decreasing range of the last day, which denotes reduced volatility or unpredictability. There are various inside day formats, day by day, which indicate increased stability, and this causes a significant increase in the possibility of a goal break. Forex traders construct plans and patterns based on this concept, using only inside bars on the day based chart time frame.

The 1-Minute Forex Scalping Strategy

The basic idea behind scalping is opening a large number of trades that usually last seconds or minutes. Some scalping strategies developed by professional traders have become very popular with traders. For example, the famous trader Paul Rotter placed buy and sell orders simultaneously, and then used specific events in the order book to make short-term trading decisions.

Rotter traded up to one million contracts a day, and, in doing so, he has inspired Forex traders all around the world and even developed a legendary reputation in certain circles. While studying well-known strategies can be helpful, they should be used to form the building blocks of your own unique setup.

The 1-minute scalping strategy is a good starting point for Forex beginners, as it is quite a simple strategy to follow. However, you should be aware that this strategy will demand a certain amount of time and concentration. If you are not able to dedicate a few hours a day to trading, then it might not be suitable for you.

The strategy involves opening a certain position, gaining a few pips, and then closing the position. Because you are only gaining a few pips a trade, it is important to pick a broker with the smallest spreads, as well as the smallest commissions.

Due to the low target per trade, one of the main aspects of forex scalping is quantity, and it is not unusual for traders to place more than 100 trades a day.

The requirements for this strategy are as follows:

While you can use this Forex scalping strategy with any currency pair, it might be easier to use it with major currency pairs because they have the lowest available spreads. In addition, this approach might be most effective during high volatility trading sessions, which are usually New York closing and London opening times.

Here's a brief example of how the 1-minute scalping strategy works in action:

Set your chart time frame to one minute. Now make sure these two indicators are applied to your chart:

  • EMA with periods of 50 and 100 (blue and green respectively in the chart below)
  • Stochastic Oscillator with periods of 5, 3 and 3

GBPUSD M1 Chart Scalping StrategyDepicted: Admiral Markets MetaTrader 5 - GBPUSD M1 Chart. Date: 28 August 2020. Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

Buy (Long) Entry Point

Now you have applied the indicators to your chart, you need to wait for an entry signal. For a buy signal, the 50-EMA (blue) must be positioned above the 100-EMA (green). When this has occurred, it is essential to wait until the price comes back to the EMAs. Furthermore, the Stochastic Oscillator needs to cross over the 20 level from below. The moment you observe the three items arranged in the proper way, you can open a long position.

In summary, the signal for long orders is:

  • Any time the 50-EMA indicator surpasses the 100-EMA indicator, be ready to open a long order.
  • If the price at which you plan to fill the order is close to the EMA indicators, and the Stochastic rises above the 20 level, open a long position.

To minimise your risk, you can also place a stop-loss at 2-3 pips below the last low point of a particular swing. As the 1-minute forex scalping strategy is a short-term one, it is generally expected that you will gain between 8-12 pips on a trade. Hence the take-profits are best to remain within 8-12 pips from the entry price.

Long Entry Example:

GBPUSD M1 Chart Scalping Strategy Long EntriesDepicted: Admiral Markets MetaTrader 5 - GBPUSD M1 Chart. Date: 28 August 2020. Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

Sell (Short) Entry Point

To make a short trade, the 50-EMA (blue) should be positioned below the second 100-EMA (green). As with the buy entry points, we wait until the price returns to the EMAs. Additionally, the Stochastic Oscillator is must be crossing below the 80 level from above. As soon as all the items are in place, you may open a short or sell order without any hesitation.

In summary, the signal for a short order is:

  • To determine when to make a short order, use the same buy strategy indicators in reverse.
  • The 50-EMA indicator should be below 100-EMA, and the price should be close to these lines.
  • The Stochastic should fall below the 80 level.

Again, stop-losses are positioned near 2-3 pips above the last high point of the swing accordingly, and take-profits should remain within 8-12 pips from the entry price.

Short Entry Example:

USDJPY M1 Chart Scalping Strategy Short EntryDepicted: Admiral Markets MetaTrader 5 - USDJPY M1 Chart. Date: 28 August 2020. Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

The Pros and Cons of the 1-Minute Scalping Strategy

In order to determine whether the 1-minute Forex scalping may prove useful for your style of trading, we will take a look at the advantages and disadvantages strategy.

Advantages:

  • Less risk exposure. A brief exposure to the market reduces the possibility of running into unforeseen, adverse events.
  • Relatively small movements are easier to achieve. A larger supply and demand imbalance is required to ensure bigger price changes.
  • The main logic behind scalping is that smaller moves occur far more frequently than larger ones.
  • Even when the markets are comparatively quiet, a good Forex scalper can still utilise many small moves.

Disadvantages:

  • A large deposit is needed.
  • Bankers and dealers have a certain advantage over amateur scalpers as they possess more information about the market.
  • A 1-minute scalper requires quick reflexes, good instincts, and mathematical skills.
  • It can be difficult to follow a Forex scalping strategy and maintain a good risk to reward ratio. For instance, with a ratio of 2:1, your take-profit at 10 pips requires a stop-loss at 5 pips, making it too close not to get stopped out in the majority of cases.
  • 1-minute scalping is time-consuming and may lead to stress.

It all depends on the individual in question. You have to see for yourself whether this is a strategy which would suit your individual preferences.

Our Top Tips for a Successful Scalper

Forex scalping is not something where you will achieve success through luck. Any scalping system focuses on exact movements which occur in the currency market, and relies on having the right tools, strategy and discipline to take advantage of them.

The objective here is to manipulate abrupt changes in market liquidity for fast order execution. Successful scalping is not related to trends, but it is dependent on volatility and unpredictability.

Here are some of our top tips to keep in mind for successful Forex scalping.

1. Risk Management

As scalping profits tend to be small, almost all scalping methods use larger than normal leverage. While leverage can amplify profits, it can also amplify losses, leading to higher risk. Therefore, risk management is key. For scalpers who use a stop-loss as part of their trading strategy, a higher leverage ratio may be acceptable.

Using high leverage is particularly risky during news or economic releases, wherein wide spreads can occur and the stop-loss might not be triggered. To prevent this, it is advisable to use an appropriate leverage ratio when scalping during periods of high unpredictability.

Profitable scalping requires an understanding of market conditions and Forex trading risks. Traders always have to keep in mind that they should never trade more than they can afford to lose. Trading beyond your safety limits may lead to financially damaging outcomes. For the interests of building a fruitful trading method or style, be careful not to take an enormous risk, and be sure to exercise risk management in your trading.

2. Trading Discipline

Forex scalping systems demand a certain level of mental endurance. To make profits in scalping, a trader must be able to control their emotions, remain calm and keep their composure. Emotional responses can cause traders to make bad decisions.

3. Understand Market Conditions for Scalping

Gaining profit in Forex scalping mostly relies on market conditions. Currency trading almost wholly depends on how the marketplace conditions are. Accordingly, scalping often denotes difficult trading market conditions - and scalping systems need to fully understand and be able to adapt to the changing nature of the market.

4. Define Your Goals

For the best systems, traders should first define their goals. Of course, the purpose of entering the market for traders is to gain profit, but when scalping you have to remember that the profits will be low. No matter what style a trader chooses for their trading, they need to make sure it suits them and that they feel comfortable with it. A well thought, disciplined, and flexible strategy is the main feature of any successful scalping system.

Can I Scalp Forex for a Living?

Many Forex traders try to make a living from scalping. Whilst it is possible, what you have to understand is that scalping takes a lot of time. Even though you might make substantial pips, it takes some time to build up those pips to the level where they offer a full-time income.

With Forex scalping, you can get a good overview of technical indicators, learn how to make fast decisions and quickly interpret exit and entry signals. We hope our guide to scalping and its techniques has helped you, so you can put what you have learnt into practice and hopefully succeed!

Final Thoughts

Scalping has been proven to be an extremely effective trading style and the same can be said of the Forex 1-minute scalping strategy. However, it is important to understand that scalping is hard work. Scalpers are rewarded for quantitative work. The more they perform, the larger the profits they achieve. In the end, your trading strategy has to match not only your personality, but also your trading style and abilities.

If you are interested in learning another Forex scalping strategy, you may want to read our articles on Bollinger Bands or the Stochastic Oscillator.

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About Admiral Markets

Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.