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Forex Scalping Strategy

FX Scouts By Jeffrey Cammack Updated: January 21, 2020

Scalping is a short-term trading strategy used to profit from small currency exchange fluctuations on a short time horizon.  Scalpers need to react very quickly to the changing market conditions and have a convincing strategy, in order to open and close lots of trades in a session.

Scalping must be suitable for your personality, and be able to react and scan the price action quickly to find opportunities. If you are not a scalper, there are other types of traders. 

Traders are defined by their trading plans. The entry and exit levels are crucial when scalping as getting these right can make the difference between losing and winning. In shorter time frames the price exhibits some very natural properties, like moving more during a particular time of the day, like market openings, and planned news events.

For experienced technical traders, scalping can be an excellent strategy to make money from the Forex market.

Scalping Strategy

In order to be successful with scalping, pay attention to these four cornerstones of strategy.

1.  Watch The Spread

The size of the spread impacts profit, so any increase in the spread can damage your performance.

2.  Don’t Scalp The Announcement

Avoid scalping the market during the news announcement and focus scalping post-news releases, looking for price follow-through in the direction of the initial market reaction. Or, if the price is fading be ready to change your view and take the other side.

3.  Scalp Highly-Liquid Pairs

Focus your trading on the major currency pairs with the most significant liquidity (EUR/USD, USD/JPY, GBP/USD, AUD/USD).

Spreads on forex pairs - table

A less liquid currency pair will affect your ability to scalp, as the price usually will be more erratic and the size of the spread will be more significant.  You can scalp the market anytime; however, there are times of the day when the market is more active, and the price is more predictable.

4.  Scalp Major Trading Sessions Opens

Scalp when the major trading sessions open:

  • London session opens at 8:00 AM GMT.
  • New York session opens at 1:00 PM GMT.
  • Tokyo session open at 00:00 AM GMT.

Advanced Scalping Strategy

An advanced scalping strategy seeks to capture the market flow.  The Forex intraday market is mainly driven by institutional money and central banks. The real institutional money needs to transact big money, and that has the potential to dislocate the price. The real money tends to flow at particular times of the day when orders come in and get executed. 

You can capture that by looking for instances at the London open, New York open and Tokyo open. The price symptoms that show up during the major trading session openings can be very predictable, which means you will be able to capture those momentum moves — one of the simplest ways of scalping the market is by trading the London open and then wait for a break in the Asia range.

Typically, the first thing you have to do is to define the Asia range.  Do this by drawing one resistance line at the highest price, and one support line at the lowest price reached during the Asia session.  Once you have established the Asia range, be patient and wait for the London open to start trading in the direction of the breakout.

In the above example, the EUR/USD broke to the downside, so we’re only going to look for selling opportunities.  The best scalping strategy, in this case, is to sell with each red candle and take profits at the close of the 5-minute candle.  Stop selling when you see green candles and only repeat the process with each new bearish candlestick.

Tools for Scalping

The best tools for scalping show you where the institutional money and central banks are investing.  Retail traders can profit from knowing where the institutional money is.  Pitview does precisely that and provides a free trial of the premium package should you feel the tool fits your trader profile.

Scalping Forex Brokers

Not all Forex brokers allow scalping, so find a broker that allows scalping if you are going to make this strategy central to your trading plan.

Conclusion

Scalping is trading over a short period capturing small price fluctuations. Scalping is best for disciplined traders to stick to their trading rules.  There are some basic strategies for scalping, as well as more advanced techniques, and find a broker that caters to scalpers with precise execution and no slippage to ensure your success.

Trading Forex and CFDs is not suitable for all investors and comes with a high risk of losing money rapidly due to leverage. 75-90% of retail investors lose money trading these products. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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