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Forex scalping: the ultimate guide to scalping forex trading

Scalping is a short-term strategy aimed at quick profits, reducing risk, and increasing success chances. Learn how it works and apply it to your trades.

Key takeaways

Scalping is a trading strategy aiming to make small profits on short-term trades

Scalpers typically open and close trades within a few minutes

Like with any trading strategy, scalping requires discipline and risk management

What is forex scalping trading?

Scalping is a popular forex trading strategy that involves taking short-term positions on currency pairs to make small profits on each trade.

Scalping forex is a type of day trading, meaning you open and close your trades on the same day. Often, the duration of each trade is extremely short – like with the 5 minute scalping strategy.

That means you’re aiming to make quick profits by taking advantage of small movements in currency markets. To do this, you need to use a one-minute or five-minute chart to see trends emerging in near real time.

Forex scalpers run trades on currency pairs but keep them open for the shortest time possible to reduce their exposure to adverse events and the uncertainty of longer-term trends.

A currency pair is a combination of two currencies that are traded against each other.

Some of the most popular pairs to trade include the euro against the US dollar (EUR/USD), the US dollar against the Japanese yen (USD/JPY) and the British pound against the US dollar (GBP/USD).

In its simplest form, scalping doesn’t wait to see how a trend develops - traders usually take profits or cut losses quickly by closing their position after the first wave. This strategy may involve monitoring the market for the entire day, but you can automate market monitoring with a forex broker.

Although it aims to reduce risk relative to other trading strategies, scalping is still a risky activity and can result in large losses mounting up if you have a flawed strategy.

Why use forex scalping?

Scalping forex is based on the theory that most currency market trends continue for the first few minutes but become increasingly uncertain beyond that.

Day trader scalpers look to profit only from this first stage, then close the position quickly, and wait to spot the next short-term trend.

For example, if the US announces poor economic news, such as weaker than expected GDP growth, this is likely to cause the US dollar to slide against other currencies in the minutes after the news breaks. What happens beyond that is less certain - the dollar may continue to slide, rally, oscillate unpredictably, or move within a horizontal range.

Being in the market a short time reduces your exposure to this uncertainty and to unexpected negative events too. The flipside is that if a winning trend continues, you won’t benefit longer-term because you’ve already taken profits and closed your position.

Scalping can also be a way to make money when currency markets are choppy, have no discernible trends, or are moving within a narrow range. As well as reducing risk, this strategy can generate exciting compound gains if you keep winning over days or weeks.

But one loss can wipe out all your gains, so you need a disciplined strategy and stop-loss limits. And even with that discipline, those losses could still mount up if you keep losing.

How scalping in forex works

Like we mentioned, scalping is all about making quick trades.

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A forex scalper typically makes multiple short-term currency pair trades in a day to take advantage of the small price movements that commonly occur.

Currency pairs are traded in lots (100,000 units), mini lots (10,000 units), or micro lots (1,000 units). For example, trading the pound versus the dollar (GBPUSD), one lot would be £100,000, a mini lot would be £10,000, and a micro lot would be £1,000. Using smaller lots decreases your risk and potential gain.

The measurement of change in value between two currencies is called a percentage in point (pip) and is equivalent to 0.01%. Profits from each scalp trade are usually tiny - say 5 to 10 pips per trade - so you need to trade large amounts and place multiple trades to make reasonable profits.

Our pip calculator tells you the pip value in the pair you want to trade, which is crucial in assessing and managing the risk.

You can also magnify gains using leverage. Leverage allows for larger position sizes, so a small change in price equals a larger profit.

Forex scalping strategies can be automated or manual. A manual system involves sitting at your computer, looking for signals, and interpreting when to open a position. In an automated trading system, you use programs (or ‘robots’) to do this for you based on set parameters.

Scalping is often driven by economic news and happens mainly in the moments after important events, such as national employment reports and central bank interest rate announcements.

Such high-impact news can cause large price moves in a short period, which is ideal for scalpers.

Get live prices of your favourite markets

Product
EURUSD
GBPUSD
USDJPY
XAUEUR
XAUUSD
BidAskSpreadChanges
1.066241.066250.1
1.245271.24530.3
154.442154.4470.5
2234.12235.089.8
2382.782382.91.2

Develop your skills with our education centre

FXTM provides free learning tools to help you power up your forex trading skills. These include easy-to-understand tutorials, articles, expert insights, webinars, and local seminars to help you learn how to scalp trade with skill and confidence.

FXTM also provides you with your own account manager to answer any questions. Visit our free education centre to start exploring.

Scalping risks and considerations

As scalping is usually short-term, you must be ready to make bold, quick decisions. Before you start, we recommended practising in a demo account to understand exactly what you’re doing.

Unless you automate your trades, you will need to watch the market all day, which requires lots of time and concentration. However, you can open and close positions on the go using your smartphone or tablet with an app such as FXTM Trader.

Forex scalping strategy: How to profit

So, how can you use forex scalping to make a profit? Above all, scalpers favour strongly discernible market movements as they make trades less risky.

Here are 5 rules for scalping success.

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1. Stay disciplined!

When scalping, you must be disciplined, and stick to your plan. Do not make emotional decisions such as letting your profits run beyond your set limit, or allowing losses to mount beyond your stop-loss in the hope your trade will recover.

Letting emotional decisions into your trading undermines your strategy and is the biggest barrier to growing your skill and profits.

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2. Pay attention to the news

As with day trading, scalping strategies tend to involve looking for indicators that a currency pair price is moving.

You will typically look for short-term news, such as national inflation figures or fiscal policy shifts, as indicators. But unlike other types of strategy, scalpers don’t have much time to analyse historical price patterns (technical analysis) or corporate financials (fundamental analysis).

Instead, you will be looking to react quickly to news to capture some of the rapid momentum in its wake. Using an economic calendar is a great way to keep on top of what is happening.

An example is any sign that the Federal Reserve may halt its interest rate hiking cycle, such as lower inflation figures.

This could prompt a slide in the dollar as lower interest rates make the dollar a less attractive currency to hold. Awareness of these news stories is important but, as your skill improves, you may not necessarily need to read the stories to spot a trend emerging based on trader action.

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3. Look for patterns

One approach common to most scalpers is to look for impulse waves - the smaller ebbs and flows you tend to see within a broader trend.

You can often see a pattern emerge as these waves hit resistance (upper) or support (lower) levels at similar prices. If you’re looking to scalp an upward trend, the goal is to time your trade for when the price is close to one of these lower levels.

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4. Manage your risk

You must prepare yourself mentally to remove any emotion from your trades. If you train yourself to instead think in probabilities, as explained in the book Trading in the Zone by Mark Douglas, you can make consistent profits even with simple strategies.

Set strict stop-loss and take-profit limits and stick to them. Setting your take-profit ratio higher than your stop-loss can increase your chances of making a profit over time.

Say you took a $10,000 position on EURUSD. You may aim to make a $100 profit before you close a winning position and be willing to lose $50 before you close a losing position. The reward is twice the risk.

If you make four such trades in one day, win three and lose one - you would make $300 and lose $50. So, your total profit is $250 - a 2.5% return for the day. If you keep winning, those returns could grow very quickly over a few weeks or months through compounding.

But finding winning trades isn't easy. So, even if you only risk $50 per trade, losses could also mount quickly if you don’t have an effective method.

Remember, if the price movement doesn’t hit your take-profit limit and you think it has lost momentum, you can close the trade and take a partial profit - or you could just let it run until it eventually hits the upper or lower limit.

A refinement of scalping is to ratchet your limits up as the market moves. This can help you benefit from longer-term upward trends while continuing to reduce downside risk.

For example, if the price moves upwards as predicted, you could start by bringing your stop-loss up to break even, so at least you won’t lose anything on that trade. Then, if the trend continues strongly, you could also set your take-profit limit higher, move your stop-loss up again, and so on.

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5. Practice, practice, practice

You must prepare yourself mentally to remove any emotion from your trades.

Set strict stop-loss and take-profit limits and stick to them. Setting your take-profit ratio higher than your stop-loss can increase your chances of making a profit over time. Say you took a $10,000 position on EURUSD. You may aim to make a $100 profit before you close a winning position and be willing to lose $50 before you close a losing position. The reward is twice the risk. If you make four such trades in one day, win three and lose one - you would make $300 and lose $50. So, your total profit is $250 - a 2.5% return for the day. If you keep winning, those returns could grow very quickly over a few weeks or months through compounding. Remember, if the price movement doesn’t hit your take-profit limit and you think it has lost momentum, you can close the trade and take a partial profit. A refinement of scalping is to ratchet your limits up as the market moves.

This can help you benefit from longer-term upward trends while continuing to reduce downside risk. For example, if the price moves upwards as predicted, you could bring your stop-loss up to break even, so at least you won’t lose anything on that trade. If the trend continues , you could also set your take-profit limit higher, move your stop-loss up again, and so on.

The bottom line

It’s easy to start scalp trading on your desktop, web or mobile with FXTM. We offer fast execution speeds, low spreads on major currency pairs, and a choice of fixed or variable spreads.

We have the tools to help you succeed, including our customisable platform MetaTrader 4. We also provide outstanding customer support 24/5; a wide choice of deposit and withdrawal methods; and trading and technical support.

Plus, our economic calendar shows you upcoming events, impact levels, past results and predictions - and we send reminders about upcoming events on social media.

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