Forex Scalping Strategy Guide: Trading the 1-Minute Chart

If you're new to the world of Forex trading, you may have heard the term "scalping." Scalping is a well-known, yet highly intense and difficult trading strategy used by traders to speculate on very short-term market movements.  

In this guide, we will dive deep into a Forex scalping strategy, how it works, and the pros and cons. This material is for informational purposes only and not financial advice. Consult a financial advisor before making investment decisions. 

What is Forex Scalping?

Forex scalping refers to a type of trading strategy that seeks to trade on very small price changes in the market, typically within a very short timeframe of just a few minutes. Unlike longer-term trading strategies like day trading or swing trading, scalping focuses on quick, high-frequency trades. The goal of a Forex scalping strategy is to try and secure small price movements, which can accumulate over a significant number of trades throughout the day. 

Most scalpers fail at this type of trading strategy as it requires fast decision-making and a very strong degree of emotional mastery. For beginners, it is wise to start on a demo trading account first before using real money and also look at other types of Forex strategies. 

Key Characteristics of Scalping 

1. High Frequency of Trades: Scalpers typically execute a large number of trades in a day, often making dozens or even hundreds of trades depending on the timeframe and strategy used. 
2. Small Profit Targets: Each scalping trade targets a small price movement, which could be a few pips up to ten pips. While the potential profit per trade may be small, the aim is to try and accumulate high volumes. This is also why many retail scalpers fail, as more trades can equal more losses when there is minimal experience. 
3. Low Timeframe: Scalping relies on quick execution, with positions typically held for only a few minutes or seconds. Scalpers rely on fast execution brokers and platforms to try and minimise slippage. 
4. Market Conditions: Scalpers typically prefer volatile markets where the market exhibits large price swings. The Forex market is a common asset used by scalpers due to its liquidity and volatility, especially during the opening times around the London and New York trading sessions. 

Suitability of a Scalping Strategy 

Deciding whether scalping Forex is a suitable trading style for you will largely depend on how much time you are willing to dedicate to trading, your experience level and emotional mastery.

It is not a trading style that is suitable for everybody. Some traders will thrive with it, but others may prefer trading over longer time periods, using strategies like swing trading. 

Forex scalping requires constant analysis and the placement of multiple orders a day, which can end up being as demanding as a full-time job, if not more. Furthermore, there are only a few hours a day when the market is liquid enough for scalping. 

Furthermore, traders interested in implementing Forex scalping strategies must be able to accept losses and a significant run of consecutive losses at a time. As scalping involves taking many trades for a short period of time there will be consecutive wins and losses that many traders find hard to deal with psychologically. 

How to Develop a Forex Scalping Strategy

Let's explore some key concepts on how to build a scalping strategy before we look at the 1-minute Forex scalping strategy after.  

1. Choose the right timeframe 

In general, most traders scalp currency pairs using a time frame between 1 and 10 minutes. Whilst there is not really a "best" time frame for scalping, the 1-minute and 5-minute timeframes are the most commonly used.  

Your acceptable profit or loss per trade will depend on the time frame that you are using. With 1-minute scalping, traders may look to target around 5 pips per trade, whereas a 5-minute scalper may target 10 pips per trade.  

2. Select the most liquid currency pairs

When it comes to selecting the currency pairs for the best Forex scalping strategy, it is vital to pick up a pair that is liquid and volatile. That being said, volatility should not be the only thing to look at when choosing a currency pair.  

Scalpers must also check that the currency pair is cost-effective to trade with the lowest possible spread and commission. As a scalper is trading small price movements, any potential profit could turn into a loss when spreads and commissions are taken into consideration. Many Forex scalpers tend to focus on major currency pairs such as EURUSD, GBPUSD and USDJPY.  

3. The importance of low spread brokers  

Now let's focus on the spread, which is the difference between the buy price and sell price of an asset. Let's assume a scalper is using a zero-commission trading account, and the spread on EUR/USD is 2 pips on average.  

When trading 1 lot of EUR/USD, the value of a pip is 10 USD. This means your direct expense would be about 20 USD when a trade is opened.  

If the scalper is looking for a 5-pip gain per trade, this amounts to 50 USD potential profit. However, to achieve this, the market would actually need to travel 7 pips from the initial entry price (7 pip gain - 2 pip spread = 5 pips). This is why trading with a low spread account type is crucial.  

4. The importance of fast execution speeds  

Another important aspect of scalping is to choose a fast execution broker and platform. In volatile markets, prices can change very quickly, which means your trade might open at a different price than what you had originally planned.  

If there is a dealing desk involved, you may find an entry price to the market, but the order could be refused by the broker. This is why scalpers tend to trade with brokers that offer STP (Straight Through Processing) or ECN (Electronic Communications Network) execution. 

5. Choosing the time of day for scalping  

A scalping trading system requires an asset with sufficient price movement and volatility. In the Forex market, the highest levels of volume and liquidity tend to occur around the open of London (08:00 - 17:00 GMT/BST) and New York (13:00 - 22:00 GMT/BST) trading sessions. But it also depends on the type of Forex scalping strategy that you are using.  

A scalper also needs to be mentally fit and focused when scalping Forex, as it requires a high level of concentration and focus. Any indication of tiredness, illness or distraction presents a reason to stop trading and take a break, and even choose a different style of trading.  

6. Decide which scalping indicators to use 

Forex scalping requires the use of technical indicators that help identify entry and exit points. Some of the most commonly used scalping indicators include: 

• Exponential Moving Averages (EMA): The 50-period EMA and 100-period EMA are common for determining the market’s overall trend and timing entry points. 
• Stochastic Oscillator: The Stochastic Oscillator is used to determine overbought or oversold conditions, which can signal potential reversals or continuation patterns. 
• Relative Strength Index (RSI): This momentum indicator helps to identify whether a currency pair is overbought or oversold, which is useful for finding potential turning points. 

A scalping system will combine various indicators and chart patterns to understand the trend and sentiment of the market, but also to confirm entry and exit signals. However, it will be effective risk management and emotional control that will determine long-term results.

The 1-Minute Forex Scalping Strategy 

Below is an example of how to build a 1-minute scalping strategy. No back testing, forward testing or live trading has been done to show its effectiveness and it is only designed as an example of how to construct a strategy.  

Before using any strategy, you should define your own criteria that suits your individual circumstances and risk tolerance. Trade on a demo account first before using live money.  

Example Conditions: 

• Instruments: Major currency pairs 
• Time frame: 1-minute 
• Indicators: Stochastic Oscillator (5, 3, 3) and two Exponential Moving Averages (50 EMA and 100 EMA) 
• Preferred sessions: London and New York open 

Below is a chart of the GBP/USD currency pair, complete with the Forex scalping indicators highlighted above. The 50-period EMA is red, whilst the 100-period EMA is green.  

1-Minute Scalping Strategy: Buy (Long) Entry Point 

Possible times to consider looking for long opportunities include:   

• Any time the red 50-EMA indicator is above the blue 100-EMA indicator 
• Price is close to the EMA indicators 
• Stochastic Oscillator is oversold, below the 20 level, starting to rise above it 

In the chart below, the red vertical lines mark where the above conditions have been met.  

1-Minute Scalping Strategy: Sell (Short) Entry Point 

Possible times to consider looking for short opportunities include:   

• Any time the red 50-EMA indicator is below the blue 100-EMA indicator 
• Price is close to the EMA indicators 
• Stochastic Oscillator is overbought, above the 80 level, and starting to fall below it 

In the chart below, the red vertical lines mark where the above conditions have been met. 

Pros and Cons of Scalping 

Below are some pros and cons of using a scalping strategy.

Pros:  

• The less time spent in the market per trade may reduce the possibility of running into unforeseen, adverse events but does not eliminate it. 
• The main logic behind scalping is that smaller moves occur more frequently than larger ones, but this is not always the case. 
• When markets are relatively quiet, scalpers may still be able to identify an opportunity, but it's not guaranteed to always find a trade.  

Cons:

• Requires a high level of focus and decision-making which can be mentally exhausting and difficult to fit into daily life.  
• There are high costs to scalping due to the frequent number of trades. This means transaction costs can add up quickly and erode any potential profits.  
• Slippage, poor trade execution and low liquidity are all major issues when trying to trade small price movements.  
• The higher frequency of trades means consecutive wins and losses. Most traders are not mentally prepared to deal with frequent losses. 

Here is a video on 'Forex Scalping for Beginners.' This video is for educational purposes only and does not constitute investment advice. 

Final Thoughts

Forex scalping is designed for traders who can thrive in a fast-paced environment, think quickly and handle the emotional and mental pressures of doing so. Not many individuals can do this, which is why scalping has a high failure rate. It is wise to start scalping on a demo account first before using real money.  

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