What is scalping in Forex trading and how to scalp Forex?
- Learning how to scalp can be profitable if you understand it the right way
- Scalping is done on lower timeframes
- There are many scalping systems
- It is essential not to overtrade
Scalping has been one of the most favoured strategies for traders who want fast profits without needing to be in front of the screen 24/5.
Scalping is a trading method where we take advantage of both momentum and volatility. We don’t do standard intraday or swing trading but rather look to take advantage of a temporary change in buying or selling pressure.
For scalpers, trend direction is important but on lower time frames. The most important factor is aligning both momentum and volatility with now moment buyers or sellers. That way, scalpers are not limited just to trend direction but rather to price action itself. You, as a scalper, want to make profits by doing fast trades. Getting in and getting out fast. Compare this to a boxing match of a legend Prince Naseem Hamed.
What is Scalping
When it comes to the Forex market, historical buyers and sellers are usually very aligned with now-moment buyers and sellers. If the price bounced off a strong level in history, the chance is that it will also bounce up in the now moment. Join the shark! Be a smart trader and follow smart money. At the end of the day, protect your profits.
To join the fray, you need to realise that trend is your friend. Trends are shaped by big sharks that are at the top of the food chain in the market, and you are a small fish following the shark.
How Does Scalping Work
First of all, you must have a clearly defined and defined system to work with. Remember, just like launching a piece of software, and you’re going live here. There are no mulligans! Not only do you have to have a system, it has to work. For full time trading, you need a proven track record of at least a year, and more realistically, up to three years.
You have to be able to prove beyond a doubt that your trading is profitable over the long run. This is going to get boring, and you want to be bored. You’re here to make money, not experiment!
Source: AUD/NZD Milton Markets, M15 timeframe
Even Scalpers Follow The Trend
A trend is an overall current direction of the market on a particular time frame (TF), always a series of thrusts and pullbacks. It can exist in every single time frame. In order to successfully follow the trend, you also need to look at a higher time frame than the one you are currently trading. Determine the trend. When the higher TF and your trading TF match, look for a retracement and enter.
As a scalper, you want to match the 15m time frame if you execute 5m trades. If you scalp on 1 min time frame, then the best match would be aligning the 1min time frame with 5 min charts.
When losses happen during scalping, they tend to happen during the transition period, i.e., when the trend is changing. In order to limit losing trades in times of transition, try to watch out for a price to hit a major area of support & resistance on a higher time frame.
When this happens, I look for a potential reversal trade and a trend change. If it doesn’t reverse, I look for a retracement to the POC zone and expect a bounce and continuation. If we can’t identify a trend or a pullback, we should move to another pair that clearly shows the trend.
Source: USD/JPY Milton Markets, M15 timeframe
Why Is Scalping Important for Forex Traders
- Profiting from quick price movements which usually occurs during periods of high volatility.
- Generally speaking, it can’t hurt to avoid losses if entry and stop-loss are both triggered on the same tick. It is done by placing a stop loss at Break Even (BE)
- High volatility moves make gaps visible in stock trading but in the Forex trading, usually we see no gaps except for the weekend moves.
- Major political events, like the Brexit referendum, US elections and COVID-19 crisis, have been able to create quick price movements and even gaps
Scalping is Great for Correlation Trading
There is a good reason for trading USD/CAD correlation with OIL prices. The Canadian Dollar against the US Dollar also carries a positive swap aka the overnight rate. That means that if you open a Canadian Dollar trade just before midnight , you might be able to earn an additional profit on the interest rate.
On the other hand, if you trade crude oil directly, you will have to pay an overnight rate (negative swap value). When you stay in the market for longer periods, this interest-rate difference can prove significant. Going long on CAD/JPY and short on USD/CAD might be better than buying crude oil directly as your profit potential might grow exponentially due to CAD exposure.
What Did We Learn From Scalping
Don’t try to chase the market. The market is like a shadow – if you run after it, you will never catch it. However, if you stand still, it will come to you.
Don’t go into this business with unrealistic expectations. You cannot make 50k a month on a 1k trading account. It’s not going to happen. Try to increase your account size through consistent returns.. Be humble and accept the losses. Keep them small and keep track of them. At the end of the day, it’s not how much you are willing to make, but rather how much you are willing to risk.
I am a trend follower. One of the reasons why my analyses, trading ideas, and setups have been successful is that I always follow the big shark carefully. I want to always be able to see the whole wood, not just a tree.
If you had a 10k EUR account, I would say that making 100 EUR per week is a realistic goal by scalping . If you had a 5k EUR account, making 100 EUR per week is much harder as you need to be consistent and 5k is not a big account.
Can you do it? Yes you can but you will definitely be over risking, and your trading account will get in the danger zone sooner or later.
Detailed Info on Scalping in Forex Trading Insights
What are the Reasons why you are Scalping?
Is it for additional income? Is it for fun? Or maybe, because you are a gambler? Yes, you heard me correctly. You can gamble in the Forex market, and you will still have more chances to win than in a casino. You should define and answer this question as honestly as you can.
When You Begin Scalping Should You Do it with Real Money?
Things like squaring away capital needs, a solid track record with a DEMO account and on a smaller LIVE account. You will also need support from your close family and friends. It will be your new job after all, be it a part-time or full time.
Be sure to approach it professionally and have additional money in reserve if you plan on living solely from trading. If not, Forex scalping can be a good additional source of income and you will have no money pressure when trading.