What is the Scalping Strategy and how to apply it in Forex?

What is the Scalping Strategy and how to apply it in Forex?

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Updated: Aug 26, 2022
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Intermediate
12 min read

Traders, especially beginners, are often looking for strategies that allow them to do more on their trading platform. It is also very common for them to look for new ways to operate. For this reason, today we will answer the question: “What is Forex scalping?” and we will provide a description of the best tips and tricks on this strategy.

Before we get started, we want to point out that this article will be most useful to traders who already have some knowledge of the market, as we will not be concentrating on the basics. Instead, we will talk about scalping, its application and the best (and worst) practices. Next we will talk more about this strategy in the forex market.

I. What is Forex scalping?

The scalping strategy is an intraday trading style. As we know, the Forex market is the most liquid and volatile of all, so there are many people who make profits of between 100 and 200 pips through price fluctuations. There is a new army of forex scalpers trying to take advantage of every opportunity that presents itself in the small fluctuations of currency quotes. In other words, scalping the market is simply taking advantage of small changes in the price of an asset, usually in a very short period of time.

This is a very popular style among traders as it creates multiple opportunities in a single day. It should be noted that this popularity is mainly due to the fact that it is very likely to obtain market entry signals. During the scalping process, profits greater than 10 pips and losses greater than 7 pips per trade (including the spread) are generally not expected. It is usual for this technique to be carried out with high volumes, which is why many traders do not follow the common rule of 2% risk per trade, but use much larger amounts during their FX scalping sessions.

estrategia scalping

II. How to do the Forex scalping strategy?

Now that the basics of scalping are clear, let’s look at the details of its practical application. It is common to use temporalities of between 1 to 15 minutes. The 1 and 5 minute timeframes are the most common, while the 15 minute timeframe tends not to be as popular. It’s a good idea to try all the timeframes to find the most suitable one (if one works for you). The gains and losses per trade will also depend on the time frame you use. When it comes to scalping the Forex market, on a 1-minute time frame, you will most likely be looking for 5 pips profits, while on a 5-minute time frame you can realistically aim for 10 pips profit per trade.

When selecting currency pairs for your scalping strategy, it is very important to choose volatile instruments where you are most likely to see fluctuations. If you choose pairs with low intraday volatility, you may have to wait several minutes (or hours) for their price to change.

It is worth mentioning that volatility should not be the only factor in choosing a currency pair. You should also pay attention to those instruments with low transaction costs or in other words, the lowest spreads. As a scalper, you will find that the spread takes between 10% and 30% of your income, so you will obviously want this value to be as low as possible.

So how do you scalp Forex? You need to develop a trading strategy based on technical indicators and choose a currency pair with the required volatility and favorable trading conditions. Subsequently, you will open an order upon detecting an entry signal. This position is closed upon finding an exit signal or reaching a satisfactory profit level.

Now it is necessary to talk about Stop Loss (SL) and Take Profit (TP) in scalping. Although it is always recommended to use an SL and a TP, scalping can be the exception. The reason is quite simple: you cannot waste time trading, every second counts. Of course, you can set SL and TP levels after opening a trade, although there are many people who prefer not to do so. This especially applies when using the 1 minute time frame when scalping FX. However, it is recommended that you use the SL and TP if you are fast enough. There are many traders who set such levels if they scalp more than one currency pair at a time.

How to scalp forex

Now, let’s focus on the spread. Let’s assume you have an account with a commission-free broker that has an average spread of 2 pips on the EUR/USD. If in your normal operations you use 0.2 lots, when scalping you would have to use around 1 lot. This means that you would incur a cost of 20 USD when opening a position. If you are looking for a profit of 5 pips per trade, your target price should actually be 7 pips above the starting price (considering the spread). If you do the math, you’ll find that it’s an increase of about 50%. This explains why you should only scalp pairs with the lowest possible spreads.

Another important element to being a successful Forex scalper is the order execution system. It can be difficult to achieve success with this technique if there is an operating table. For example, you might find a perfect signal to enter the market only to find that your broker rejects the order. The situation can get worse when you try to close a position and the broker refuses, which can sometimes be deadly for the trading account. For this reason, it is vital that you choose a broker with STP or ECN execution, in addition to facilitating scalping.

So, we have already explained how to scalp Forex, as well as commenting that spread and execution are important points to consider. Now, we will begin to examine the brokers that we can choose from.

III. The best Forex broker for scalping

When selecting the best Forex broker to scalp, you must rule out all those that do not allow such a strategy. You may be surprised to learn that some brokers do not allow scalping because they prohibit closing positions that are approximately less than 3 minutes open.

Similarly, you should rule out all brokers that do not offer STP or ECN execution, as the dealing desk would only be a hindrance when scalping Forex.

Now, with a smaller list of all available brokers, you should start analyzing the instruments and prices between different providers. Many brokers charge commissions, which is not a negative aspect. You should only take these commissions into account when determining the cheapest broker. However, costs should not be the only factor in choosing a broker for a forex scalping strategy.

IV. Living from Forex scalping

Many traders try to make a living from the market and many beginners hope to make huge profits by scalping. Although it is possible, you have to understand that scalping takes a lot of time. You can undoubtedly earn a good amount of pips, although you must accumulate them progressively. Forex scalping is perhaps best as a way to further your trading career. By using this strategy, you can get to know the technical indicators well, learn to make decisions quickly and interpret entry and exit signals quickly. We hope that this explanation about scalping has been useful to you and that you put into practice what you learned.

V. 1 Minute Forex Scalping Strategy

In Forex there are hundreds of techniques and strategies to make money. But, if you are just starting out in this world, you may be wondering: Which of them do I use? The reality is that there is no technique that is superior to the others, although some are simpler and easier to implement.

Today we are presenting you a strategy that mainly requires time. This is the 1 minute scalping strategy. As its name indicates, it consists of making quick operations to obtain a series of small profits, which in the end accumulate in a large profit.

This technique is ideal for Forex beginners because of its simplicity. Read on to learn how to implement it.

What is scalping

Forex 1 Minute Scalping Strategy Requirements

To execute this strategy successfully, it is necessary to have some fundamental elements:

Weather

First of all, you should have at least a few free hours per day to dedicate to scalping. This is a method that can deliver huge profits, provided the necessary time is dedicated to it.

a good broker

Not all Forex brokers are the same. To execute the 1 minute scalping strategy smoothly, you need to select a broker with excellent execution speed and low spreads. Brokers without a dealing desk (with STP or ECN execution) are the best options as opposed to brokers with a dealing desk. Similarly, you have to find brokers that offer the lowest possible spreads or commissions.

Stable and fast internet connection

Since scalping develops at a high speed in short timeframes, it is necessary to have a stable Internet connection. The last thing you want is for the trading platform to not correctly recognize your trades due to an internet connection failure.

Now that we have seen the basic requirements of this strategy, let’s see how to implement it!

How to Implement the 1 Minute Forex Scalping Strategy

The following setup is found on the popular MetaTrader 4 platform, which is available from almost all Forex brokers. However, it is also possible to find the settings in many other trading software:

  • Currency pairs: All (the lower the spread, the better).
  • Temporality: 1 minute
  • Indicators: 100-period EMA, 50-period EMA, Stochastic with settings 5, 3, 3
  • Sessions: High volatility, such as London and New York

Buy Signal

In order for you to buy a currency pair, the following criteria need to be met:

  1. The 50 period EMA should be above the 100 period EMA.
  2. Stochastic must cross the 20 level from the bottom up.
  3. The price chart should touch the 50 period EMA.

When these 3 criteria are met, you can open a buy order.

Buy Signal

To protect your position, you can set stop loss orders about 2-3 pips below the last price low. Similarly, to ensure taking profit, you can set a take profit order about 8-12 pips from the entry price.

sell signal

If you understood how to set buy orders in the 1 minute scalping strategy, you will have no problem opening sell orders. Actually, you just have to apply the same indicators in reverse:

  1. The 50 period EMA must be below the 100 period EMA
  2. Stochastic must cross the 80 level from the top down
  3. The price chart must touch the 50 period EMA

Again, when all 3 criteria are met, you can open a sell order.

sell signal

In this case, you can set a stop loss about 2-3 pips above the last price high, and a take profit 8-12 pips from the entry price.

Where to start?

Now that you know the 1 minute scalping strategy, all that’s left to do is apply it. For this purpose, you can open a demo account with a reliable broker and thus gain experience without risking any money. Similarly, you can take advantage of the promotions of some Forex brokers that offer free money to trade just for confirming the phone number.

Conclusion of the 1 Minute Forex Scalping Strategy

The 1 minute Forex scalping strategy is ideal for people who are just starting out in the forex market and have a lot of free time. As you can see, this technique uses only two technical indicators (EMA and Stochastic) and never asks for fundamental analysis, so it is perfect if you do not have a deep knowledge of the market.

For this strategy to pay off, you have to apply it at a broker with good order execution and low spreads. With a bad execution, your orders will not be taken into account. On the other hand, with high spreads, broker commissions will kill your profits. So remember to take into account all the information that we share today so that your experience obtains good results.


Sources & references
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James Knight
Editor of Education
James is a lead content editor for Invezz. He's an avid trader and golfer, who spends an inordinate amount of time watching Leicester City and the… read more.

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3. News Trading Strategy
4. FX Trading with CFDs
5. MACD Strategy
6. Countertrend Strategy
7. Martingale
8. Soldiers Strategy
9. Scalping
a. What is the Scalping Strategy and how to apply it in Forex?
10. Trendline Strategy
11. Price Action
12. Roller Coaster
13. Stop Loss Strategy
14. Pisco Sour Strategy
15. European Open Strategy

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