Forex scalping is perhaps one of the fastest and most intense forms of trading in the field. It’s a form of high-frequency day trading that involves buying or selling currency pairs aspiring to make small cumulative profits rather than significant gains from fewer trades. For this reason, forex scalpers will hold positions for as little as a few minutes or seconds at a time. Consequently, this means such traders open and close multiple trading positions in a single day.
Given that forex trading can be a very technical undertaking, having a befitting strategy can go a long way in maximizing profitability. Click here to learn more about Forex Trading Strategies. Hence, forex scalpers also need to find a suitable trading technique that works for them. Scalpers are spoilt for choice when it comes to choosing a strategy. Although picking an appropriate approach may seem intimidating, comprehending the various procedures can make it easier to decide. Keep reading to learn more about the most prevalent scalping techniques and how you can incorporate them with your trading style.
Widespread Scalping Strategies
Since scalp trading forex markets involves aggressively taking several small trades in a day, the best way to do this would be using trade indicators.
Scalping Using Moving Averages
Moving averages are mathematical formulae used to spot emerging and common trends and patterns in the market. There are two moving averages; small moving averages (SMA) and exponential moving averages (EMA). Essentially, when the moving average is declining, traders ought to look for short positions and vice versa. Still, it is vital to remember that such trades rely on the trend; therefore, traders should not expect to catch all trading opportunities available. Furthermore, as with all scalping trading strategies, risk management is essential to ensure you avoid substantial losses that undermine previous small gains.
Scalping Using Parabolic Stop and Release (SAR) Indicator
Another popular indicator used in scalp trading is the parabolic SAR. This indicator highlights the price direction while suggesting possible entry and exit points. The parabolic SAR is a series of dots on the graph that indicate bullish and bearish pressure. When using this indicator as a scalping strategy, traders must identify potential reversals to discover the best times to enter or exit a market. When red dots appear above the current price, it indicates bearish pressure and a possible downtrend. On the other hand, green dots below the current price implies bearish pressure is imminent.
Scalping Using the Stochastic Oscillator
Day traders can also use stochastic indicators as a scalping strategy. These are technical indicators that compare the current price of a currency pair to its value over a certain period. By approximating the price of a forex pair to its recent range, stochastic oscillators attempt to point out potential reversals in the market. Scalp trading using this strategy mainly involves identifying moves in a trending market. Hence, traders need to look for areas where the recent average is close to the current price, indicating possible reversals.
Things to Consider Before You Start Scalping Forex
While scalping forex may seem like easy money, it couldn’t be further from it. There is a lot to learn and practice before becoming consistently successful at this trading style. Moreover, there are numerous pros and cons to scalp trading. Therefore, you must ensure you comprehend every concept before adopting any scalping strategy.
Perhaps the most significant factor to note is that scalp traders cannot depend on one strategy. Since market patterns are ever-changing, sticking to one scalping technique will not make you a successful trader. Another vital thing to remember is that you can only specialize in a few markets since not all forex pairs behave the same.