|How to scalp in forex|
Scalping is a short-term trading method, in which the trader gains small profits by closing each position. Traders who use this method are called scalpers. When scalping, traders buy or sell a foreign currency, and keep their position opened for a few minutes or seconds. By doing this several times throughout the day, scalpers gain several small profits.
Price variations in the forex market is indicated with pip (point in percentage). In fact, pip is a unit to measure loss and profit. Scalpers usually aim to take a profit around 5 to 10 pips in each individual trade. This may seem so small at first, but by repeating the process several times each day, this profit accumulates and provides the scalper with handsome profits. Scalping in forex is actually a kind of arbitrage.
What is scalping in forex
Scalping in forex means, using a short-term strategy to make profit from small variations in the market. Scalping is most effective when combined with the use of leverage. Leverage allows traders to borrow money from their broker in order to trade more than their actual balance. The amount of leverage is determined based on the trader’s actual balance.
Leverage could magnify both profit and loss. Therefore, scalpers should use this tool more carefully than any other kind of trader.
Price action scalping in forex
Price action trading is a trading technique, in which the traders don’t use any technical indicators. In this technique, traders use technical analysis basics instead of technical indicators. In this method, the candlestick charts are studied accurately and the trader uses supporting and resisting zones to extract the same information that a technical indicator would suggest. By using a deep analysis about price movements, traders would be able to make informed decisions and they would only trade when the trading opportunity is in accordance with their risk/reward ratio.
In price action scalping, the technical approach replaces all fundamental elements and scalpers disregard all external factors, which could affect the price. For instance, some economical factors, which could affect the price of a certain asset include inflation, economical growth, supply and demand, market sentiments and interest rate.
Forex scalping signals
In volatile markets, trading signals are used to identify entry and exit points, by using a specific software or several technical indicators. Forex scalping signals are important, since they will determine the pace of trading in the market. Signal providers in forex, help scalpers to find trading opportunities in a volatile market. Forex scalping signals are generated based on economical events, such as the events described above.
Most traders use forex scalping method, since this system provides them with complete access to price graphs, technical indicators and the best trading hours in forex. Technical traders tend to focus on price charts to be able to find the best trading opportunity.
Technical indicators for scalping
Many traders wonder which technical indicator to use when scalping. Let’s introduce technical indicators briefly, before answering to this question. Forex scalping indicators are used to indicate patterns and trends on price charts. The most widely indicators used in forex include Bollinger Bands, stochastic oscillators and Keltner channels.
Several tips when scalping in forex
- Scalpers should focus on a certain currency pair, because they would have a better chance when they put all their attention on a single position. Managing several positions simultaneously could complicate the scalping process.
- It is recommended to trade currency pairs with high liquidity at their most actively traded hours. Scalping is a fast process, therefore, major currency pairs with high liquidity should be traded where scalpers could open and close positions rapidly.
- Scalpers have a higher risk appetite. Scalping needs focus, the ability to analyze fast and a favorable amount of patience. These characteristics help scalpers to stay calm and control their emotions.
The best currency pairs for scalping
Traders should choose major currency pairs such as GBP/USD, EUR/USD and AUD/USD or minor currency pairs such as AUD/GBP for trading. Because they are widely traded and they are responsible for a large portion of trading volume in forex. These high liquidity currency pairs have tighter spreads, making it easier for scalpers to gain profit from trading them. However, some experienced traders may prefer some more volatile and riskier currency pairs.
The best time for scalping
All traders agree on the best time for scalping in forex. For example, the best time for trading a currency pair, in which the Britain Pound is the base currency is at the beginning of London session. However, the best time to trade major currency pairs is at the beginning of New York session, because the U.S Dollar is at its trading peak in these hours. It is notable that traders don’t analyze charts outside the trading hours. Some scalpers prefer to trade at the early hours to benefit from more volatility. However, this method is only recommended for experienced traders due to its high level of risk.
Is scalping profitable?
Forex market is volatile most of the times. But this volatility, sometimes changes to uptrend or downtrend. To prevent significant loss, scalpers should make sure that no such thing happens, and if the current trade suffered loss, how could the next ones cover for it. Another thing that scalpers should look out for, is entering a position too late or closing it too soon. In this case, using high leverage could be significantly harmful, since it magnifies the loss and evaporates trader’s balance in the blink of an eye.
A scalper should be able to rapidly find trading opportunities and manage them in a matter of seconds. As the positions are kept opened for a longer time, the probability of suffering loss increases. Therefore, scalpers tend to trade those currency pairs, which benefit from tighter spreads to minimize the risk. Since scalping needs a high level of experience and concentration, it is not recommend for novice traders.
Using stop loss order, specially when assets are at their most volatile condition, are the best way to manage risk and minimize loss. When it comes to scalping, traders are able to specify a certain price level as stop loss, to close the position immediately, in case the market moved in the opposite direction. Since scalping only takes a few minutes, this keeps the trader from free falling.
Aron Groups broker has made it possible for scalpers to trade profitably in forex, by offering the most competitive spreads and commissions. In Aron Groups, you can benefit from a wide spectrum of currency pairs in cryptocurrency, energy, Indices, commodity, metals and foreign currencies.
Written by: Mohsen Mohseni (Aron Groups).