Learn Forex Scalping As A Trading Strategy

This depends entirely on the individual and what they are looking to achieve from a Forex scalping strategy. The focus of scalp trading is to generate gains by placing several small trades and accumulating several small gains throughout a trading session. Generally gains will be in the region of 15-20 pips per trade, so it is necessary to determine how many pip gains per day need to be made to achieve a specific goal.

This will be a consideration when drafting a trading strategy but thought needs to be given to how many hours per day can be committed to trading. There is no point setting a target of 100+ trades per day if only one or two hours can be allocated to trading.

» See our guide characteristics of a Forex scalper for more information on creating a sensible approach to scalp trading.

This is a common question asked by beginner traders. It is important to remember that Forex scalping focuses on trading on the smallest time periods, capitalising on the smallest fluctuations in prices and accumulating several small gains during a single trading session. 

To be able to enter and exit the necessary amount of trades to make the strategy work, traders should look to hold positions for anywhere between a matter of seconds to ten minutes.

Forex scalping focuses on taking positions early and exiting once the desired gains have been met. Scalp traders generally look to achieve gains of around 15-20 pips per trade and hold trades for a matter of minutes. To maximise trading opportunities, optimal entry and exit points need to be identified and this is generally achieved on time frames of 1 minute or 5 minutes.

How many pips are required per trade when Forex scalping will be a target set by the individual in accordance with their goals set out within their plan. Generally speaking though, scalp traders look to achieve between 15-20 pip gains on each trade.

» We explore the contents of a trading plan in more detail in our guide why is a trading plan important.

An important factor to consider when calculating how many pips should be targeted per trade is the levels of leverage being used as this will directly impact the value of each pip. High levels of leverage may mean that smaller pip gains are required than compared to a more risk adverse trader that uses lower levels of leverage.

» Learn how to calculate pip value by reading our guide what are Forex pips and how to calculate their value.

Day trading and scalping are similar in that trades are held for short periods of time and not held over night. Forex scalping however works on the shortest of time frames holding positions for a matter of minutes, possibly even seconds, whereas day traders will hold positions for longer periods up to several hours.

The difficulty that comes with scalping is identifying trading positions that meet the conditions set out in a trading strategy and acting quickly, both on entry and exit. Day traders can have a bit more flexibility as larger pip gains will be made per trade and greater flexibility can be allowed when identifying entry and exit points.

Another difficulty is the time commitment that is required to scalp trade. Due to requirement to make several trades per day, the scalp trader will be required to spend a great deal of time searching several markets for trading opportunities. Day traders can be more flexible, as placing fewer trades but with a larger potential pip gains can lead to the same end result but with less attention.

» We explore the complexities of scalp trading further in our guide characteristics of a Forex scalper.

There are dozens of scalping strategies that are used by traders of all experience, some will require the use of a variety of technical indicators, multi-time frame analysis, important economic announcements and the list goes on.

There are however some very simple strategies that use basic forms of analysis such as levels of support and resistance and trend trading. These require very little understanding of the complexities of more sophisticated systems and can be built upon as your knowledge and experience develops.

» See our guide simple Forex scalping strategies to explore these further. 

Online brokers provide their customers with a range of technical indicators that can provide useful information to help identify optimal entry and exit points. Choosing which indicator is most suitable may seem overwhelming initially as there are so many, and they all provide different forms of information.

There is a 1 minute scalping strategy that is widely used and utilises two variants of the Moving Average indicator and the Stochastic Oscillator. This is very easy to implement as both indicators incorporated within the strategy provide very straight forward and easy to read information that assists greatly with creating trading signals.

» To explore this further see our guide learn the 1 minute Forex scalping strategy.

There are two key components to consider when determining which currency pair to trade, without them a scalping strategy will be extremely difficult to trade:

High Volatility 

Forex scalping is based around the requirement to enter and exit several trades a day, each trade making very small gains. High volatility is required in the markets as this ensures that prices are constantly fluctuating, creating entry and exit points. There are several trading sessions over a single day and it is imperative that you trade the currencies that are most traded within these sessions. The periods of highest volatility are when trading sessions overlap, for example New York & London sessions are both open between 1pm - 4pm and Tokyo and Sydney are both open between 12am - 7pm.

If a scalping strategy is focusing on trading either the USD or GBP, it is essential that the trader is able to operate within these trading sessions. 

» For more on market hours and trading sessions see our guide Forex market hours and best times to trade. 

Liquidity

The definition of liquidity when discussing Forex markets is that liquidity is related to the amount of pending orders that exist on the market at a certain time. This is an important consideration to Forex scalpers as trade entry and exit points need to be actioned immediately. When the buy or sell button is hit, the order needs to be executed at that exact price. The same happens when you want to close your trade. If a trade close is not executed at the price required, one small movement of the price may turn a trade close to a loss.

That’s why liquidity is an important factor to consider for beginners looking to learn Forex scalping strategy. The more liquid the market being traded, the more accurate the open and close orders will be. When implementing a scalping strategy, only the major currency pairs should be traded as they provide the most liquidity.

Leverage is essentially the ratio between capital invested and the size of a position actually taken. There are various levels of leverage offered by online brokers that range from 30x - 100x. This means that an account with an initial deposit of £1,000, can actually enter a position of £100,000 by utilising maximum leverage.

Forex scalping focuses on capitalising on very small fluctuations in price, to make the trade worthwhile, the size of the position taken has to be much larger than would otherwise be needed if another trading style was adopted. Traders will likely be required to leverage their initial investment to achieve this, which will require a larger deposit.

All online Forex brokers will offer leverage, levels will vary, but some will allow a position to be taken up to 100x the value of their account. If a trader initially deposits £1,000 to open an account, leverage of 100x would allow a position of 100,000 units.

The purpose of forex leverage trading is to create a trading position that is worth taking. Trading at higher levels increases pip value in accordance with the leveraged trade size, therefore increasing potential gains that would arise from small pip movements.

» For more information see our beginners guide to leverage.