Forex scalping strategy is a trading strategy aimed at making quick returns within a short period of time. And those who uses this strategy are called Scalpers. Scalpers buy and sell forex pairs, synthetic indices, etc., for short periods: minutes and even seconds.
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Scalping is a day trading method where traders take short positions aiming to maximize their profits. Scalpers take many positions aiming to get small wins such as 2 to 20 pips per trade. Scalping is especially instrumental after major news releases such as employment and interest rate reports. Major news releases cause price fluctuations which make them ideal for scalpers.
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Forex scalping strategy is characterized by increased volatility, the scalpers tend to take small positions to reduce risk. The ideal trading broker for a scalper has the following characteristics; small spreads, low commission, and allowing one to post trades at any price.
Scalping takes advantage of leverage. Leverage allows traders to take larger positions so that small price changes give a sizable return.
The forex scalping strategy uses various technical indicators including moving averages, Bollinger bands, and support and resistance to find opening positions.
Here are 7 simple scalping strategies for portable trading.
Table of Contents
Forex scalping strategy: 7 simple methods for maximum returns
Relative strength index (RSI) strategy
Unlike other scalping strategies, the relative strength index is an oscillator used by scalpers to predict the direction of an asset in the future. The RSI is used to indicate over-extended markets; when the score is above 70, it means the market is overbought and when it is below 30, the market is oversold.
For beginners, set the oscillator to a 5-minute chart, and for scalpers ideally a 1-minute chart. For a buy entry position, the price should be above the 200-EMA (exponential moving average), while the RSI should fall below 40 but not past 25. Wait for the RSI to rise back to 40 and create an entry position where the RSI crosses above 40.
For a sell entry position, enter the trade when the price drops below the 200 EMA and the RSI to be above 60 but not above 75. Enter your position when the RSI drops back below 60. However this method is not 100% accurate, most experience scalpers use price action too to decide when to enter and exit a trade.
Using moving averages
The simple moving average (SMA) or exponential moving average (EMA) is very helpful for scalpers. Scalpers can make use of the 5,10,50,100 or even higher period SMA or EMA depending on their strategy. Get more insights on how to use moving averages to grow your small account.
In this forex scalping strategy, the traders open positions according to the direction of the moving averages. This strategy is good for scalping but it might require more analysis before taking long positions. It is not the best scalping technique but it works for many traders.
Bollinger bands strategy
Bollinger bands are a useful scalping indicator. A flat Bollinger line indicates that the market is changing to a tight range trading. When scalping, the trader buys a pair when it falls close to the lower band and sells when the price rises close to the upper band.
Not all positions might succeed but this forex scalping strategy has helped many traders win most positions.
Trading support and resistance
This forex scalping strategy is similar to using Bollinger bands, but instead, traders use support and resistance. You can use the 200 Exponential Moving Average to indicate support and resistance, but experienced scalpers uses the Market structure to spot support and resistance. Places like double top – indicate a resistance zone, while double bottom indicates a support zone.
Basically, the scalper will buy near the support level and sell near the resistance levels with stop loss slightly above the previous low or high respectively.
This forex scalping strategy is ideal for short-term trading before the market breaks out.
Parabolic SAR indicator
The parabolic SAR or parabolic stop and reverse is an indicator used to determine the direction on the market in a short term the parabolic SAR is usually indicated on charts as dots placed either below or above the candlestick. The dot is placed below when there is an upward trend while placed above during a downward trend.
This indicator is best used in steady markets. When the dots appear below the candles, it is a buy signal, while when the dots appear above the candles it is a sell signal.
Choose pairs with the lowest spreads.
Forex scalping strategies don’t focus on making big returns on a small number of trades, instead, it maximizes on many small trades. Therefore, choosing a forex broker with big spreads can eat into the margins and reduce the trader’s payout.
when using forex scalping strategies, choose the right forex broker
Choose more volatile currency pairs
In scalping, the market has to move fast to provide more opportunities to trade. The forex scalping strategy is used for trades taking place within 1-15 minutes. With low volatile markets, it takes much more time for the price to move, therefore a short position might take up to 30 minutes to reach the expected level.
Some currency pairs that are ideal for scalping include AUD/JPY, GBP/AUD, and GBP/NZD. Gold and silver also have high volatility.
Before starting to scalp, remember that forex is not a get-rich-fast scheme. It needs work just like any other endeavor. Having many short open positions can deflect your account fast just like it can build it.
Wishing you all the best!