An Introduction To Forex Scalping
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Do you find scalping to be an interesting method for trading the financial markets? Most traders are charmed by the prospect of quick trades and profits, but scalping requires a disciplined and persistent approach. This article explains scalping in more detail, and examines whether scalping is a proper trading style for you, how traders can apply scalping methods, and which aspects are critical for increasing your success with scalping.
Scalping Definition - What Is Scalping?
Scalping is a trading style or technique where traders buy and sell a financial instrument (such as EURUSD) within a short period of time. As with all other trading styles, scalpers enter the financial markets by taking a long position (buy) or a short position (sell). The setups are then closed by the doing the opposite: a sell closes a long position and a buy closes a short position. The main difference between scalping, intra-day trading and swing trading is the length of the trade. Also, the number of setups, the intention of the trader, and leverage are critical factors that play a role.
- Trade length: this varies from setup to setup, but scalping trading could be as short as a few seconds, and as long as a couple of hours, although this is less typical. Usually a trade lasts at least a few minutes, and up to an hour or two. Trades that last several hours (3 or more) are usually considered as intra-day setups.
- Trader's intention: a scalping trading strategy is purposefully aiming for short trades and often smaller wins. A swing trader that decides to close their setup unexpectedly after an hour is, however, not a scalper. In this case, the trader is only closing the setup early.
- Leverage: scalpers usually apply more leverage than with other trading styles to enhance profits when they win. Of course, bear in mind that leverage works in both ways: so you can achieve potentially larger wins but you can also incur also larger losses.
- Number of setups: usually scalping trading strategies offer more setups in a day. Scalpers tend to enter and exit more frequently compared to intra-day or intra-week trading systems.
Forex Scalping vs Day Trading
When comparing scalping versus day trading, there are a few main advantages and disadvantages for scalping. Let's begin with the benefits of scalping and applying scalping trading strategies:
- They offers more trade opportunities.
- They tend to deliver a high win rate.
- There is limited exposure to market risk over time.
- They offers quick results.
- You enter and exit setups regularly.
The main disadvantages are as follows:
- Smaller wins, whereas losses can be large.
- More time spent behind the PC.
- More costs via the spread per trade.
- It can be a stressful activity for some traders.
The pros and cons listed above are the main reason for why it's best for traders to test their scalping trading strategy on a Demo account first. If traders are using a live account, it is recommended that they apply proper risk management techniques when doing so, to ensure that they manage the risks involved effectively.
CFD And Forex Scalping Techniques
Traders can apply scalping trading strategies to a wide range of financial markets and instruments, including Forex and CFDs. One of the main criteria is sufficient price volatility. Here are a few of the most interesting instruments for Forex and CFDs:
- Currency pairs such as the EUR/USD, GBP/USD, and GBP/JPY are known for their price volatility during the trading day, and they offer various opportunities for Forex scalping.
- Financial instruments such as DAX30 CFDs and CFDs on Gold see fluctuating price movements on a regular basis, which is a desirable environment for scalping strategies.
CFD and Forex scalping is mostly performed on charts such as the 1 minute, 5 minute, or 15 minute time frames. CFD and Forex scalping is often based on technical analysis, price action and news or data releases.
Source: Admiral Markets MT5 with MT5SE Add-on EUR/USD 15 minute chart (between 4 September 2018 to 10 September 2018) - performed on 19 September 2018 at 4:00 PM GMT - Please Note: Past performance does not indicate future results, nor is it a reliable indicator of future performance.
The most popular and used scalping method is probably based on indicators. Some tools are more used than others - here are some of the most popular tools:
Admiral Markets also offers its own indicators and useful tools for CFD and Forex scalping via the MetaTrader Supreme Edition package. It includes amongst others:
- Keltner Channel
- Admiral Gravity
- Admiral high-low
- Admiral Pivot
- Admiral Renko
- Point and Figure
- Mini charts
- Spread indicator
- Candle countdown
Source: Admiral Markets MT5 with MT5SE Add-on EUR/USD daily chart (between 13 April 2017 to 19 September 2018) - performed on 19 September 2018 at 4:00 PM GMT - Please Note: Past performance does not indicate future results, nor is it a reliable indicator of future performance.
The Best CFD And Forex Scalping Strategies
Traders must use trading systems to achieve a consistent approach. Although this is valid for all trading styles, it is even more vital 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 or 15 pips for a setup. The critical factor to check is whether the small wins add up to more profit than what is lost when losing. 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. Scalp trading strategies that have a positive expectancy are good enough to include, or at least to consider for your trading portfolio. Scalp trading strategies that create negative expectancy are not worth it.
List Of Strategies
Providing a definitive list of different scalping trading strategies would simply not fit within this article. To keep things compact and readable, we will provide a summary of different types of Forex scalping methods. You can click the links to find out more information about each of the scalping strategies:
- Low spread scalping strategies
- Creating new short-term scalping strategies
- The 1 minute scalping strategy
- Scalping strategies for beginners
When tackling the financial markets with one of these scalping trading strategies, make sure to also 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
The Best Times (Not To Trade) For CFD And Forex 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 and New York trading sessions, which make these sessions particularly interesting 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 also be mentally fit and focused when scalping. Any signs of tiredness, illness, or any sign of distraction present reasons to cease scalping, and take a break.
Also keep in mind that CFD and Forex scalping is not a trading style that is suitable for all types of traders. Some traders will thrive with it, but others perform much better as swing traders. Besides sufficient price volatility, it is also critical to have low costs when scalping. The main cost is the spread between buying and selling. Traders lower their costs by trading instruments with low spreads, and with brokers who offer low spreads. Usually the lowest spreads are offered at times where there are higher volumes.
Source: Admiral Markets MT5 with MT5SE Add-on EUR/USD 5 minute chart (between 17 September 2018 to 19 September 2018) - performed on 19 September 2018 at 4:00 PM GMT - Please Note: Past performance does not indicate future results, nor is it a reliable indicator of future performance.
The Best Broker For CFD And Forex Scalping
Do you know which broker to choose for scalping? Finding a good broker is actually a very important step for scalpers. Several aspects should be taken into consideration before choosing a 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)
Admiral Markets offers all of the aspects above, as well as:
- Spreads from 0 pips on Forex major pairs
- Market execution with no requotes
- 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 also 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 scalping strategy via a Demo account or a live account.
The Best Platform For CFD And Forex Scalping
The best trading platform for CFD and Forex scalping is arguably the MetaTrader Supreme Edition. Traders can use scalping strategies 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. Admiral Markets offers the Supreme Edition plugin which offers a long list of extra indicators and tools.
These features are not a standard part of the usual MetaTrader package, and include features such as 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 extra indicator package including the Keltner Channel and Pivot Points indicators.
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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.