Trading Academy

Lesson 43

Scalping the Forex Market

Scalping is a short-term trading strategy characterized by capitalizing upon very small pip fluctuations. Scalping strategies generally employ indicators, price action, or a combination of both, being applied on the lowest timeframes available (1 minute, 3 minutes, 5 minutes).  The goal is a quick trade for small but leveraged profits.

Many traders prefer scalping because it is a highly active strategy that involves staying in the market for very brief periods of time. This reduces the risk of getting stopped out by unpredictable adverse events. A typical target for a scalper would be 5 to 15 pips of profit.

Here are a few necessary tools for successful scalping:

Small Spreads – these are mandatory in scalping. This is why scalpers usually stick with major pairs such as EUR/USD, GBP/USD and USD/JPY. These pairs have the lowest spreads and the highest liquidity.

High Leverage – scalpers need high leverage in order to amplify the returns they get by capturing very quick and small price fluctuations.

Avoiding News – news announcements spell danger for scalpers, because they cause wild swings in currency pairs. Scalping strategies thrive in calm market environments when markets move technically. That’s the opposite of what happens during significant news releases.

To give yourself a better chance of scalping successfully, make sure you are aware of the higher timeframe charts at all times. You will need higher accuracy, and a very clear procedure for incorporating the dealing spreads in your risk and money management tactics.

Keep in mind: traders who use scalping have to be the quickest and most disciplined of all. They must employ rapid reaction and instantaneous decision-making to capture only a few pips on each trade.

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