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An essential way to become a successful forex trader is looking for a trading technique that suits your needs. There are several ways to trade Forex effectively. Scalping is one of the most commonly used trading styles that seek steady and consistent profit from several small winning trades for a short time. Basically, a scalper will not hold onto a trade for a long time, instead, the trade is closed within some minutes.
The 10 Powerful Scalping Tips
It is actually an intensive trading method that some traders use to earn huge profits by accumulating small profits collected throughout the day. Most traders don’t understand the magic of using this strategy because of the little profit earned from each trade but in the real sense, it is actually profitable. There are several traders making huge profits from scalping but still, there are people losing their money just like in the other trading strategies. The key to succeeding in Forex scalping is mastering all the secrets discussed below:
1. Try scalping with demo account first
You should not jump into Forex scalping and assume that you know everything. To be a successful scalper, you need to learn and exercise your scalping skills with a demo account. This is particularly for beginners who have not done Forex scalping before. The demo account will help you get an insight of what to expect once you start the actual trade.
2. Use lower risks
If you consider what a scalper makes in a day, it is critical to lower the gap devoted to a single trade and reduce risk. You should NEVER risk over 2% of your initial deposit. For instance, if you deposit $1,000 in your account, you should avoid placing any trade above $20 in the margin.
Basically, this is the limit that your account can take if the trade does not go on your favor. A trader can place multiple trades without violating the margin requirements. This will apply even to accounts with small capital. Low stakes ensure that you can continue trading for a long time without receiving a margin call that can lead to blowing of the account.
3. Minimizing scalping indicators usage
Trading indicators are mostly used by advisors and technical analysts and can be very useful to you as a trader since they inform you of any opportunities that may arise in the near future. Among the most common indicators are:
- Bollinger bands
- Stochastic indicator
- Moving averages – (Simple and Exponential)
- Relative Strength Index
- Moving Average Convergence Divergence (MACD)
- and many others
You will notice that every trading platform will have very many trading indicators (50 plus) and you (trader) will always be tempted to add as many of these indicators as possible and this will make you end up with a cluttered workspace full of indicators.
This would, in turn, cause an overload of information that would consume too much time to interpret. By the time you interpret them, you will have lost the trend you were looking for. To be a successful scalper, pick 1 to 3 indicators and have faith in them.
Alternatively, you can also use super indicator with self-learning like Forex Pin and Agimat. They are called as “super” indicator because they have a built-in Artificial Intelligence (AI) in the form of Neural Network. The system can learn from mistakes and self-build new algorithms for better future predictions.
4. Master specific scalping strategies
Unlike other trading strategies whereby you can switch up from one trading strategy to another, you should NEVER try that when scalping. Just imagine having ten trades in a day without any strategy. That would be suicidal, right? You’d never tell which strategy worked and which one didn’t. You will never understand what went wrong. This is the reason why scaling isn’t for amateur traders. It is only for seasonal traders who have mastered a certain strategy that has worked out the best. It is fundamental to test any strategy on a demo account before scalping onto any market. A demo account is basically offered by the broker; therefore, you should sign up and start testing your strategy. A successful scalper should have 2 or 3 strategies that they use throughout the day. Some of the strategies used by scalpers involve mastery in the following:
- Use of indicators
- Candlestick patterns
- Trading on financial news
- Minimize Losses
Being a scalper, you will most likely make very many trades per day, and the reality of the matter is that nobody (even the most experienced traders) is 100% successful. If you want to make consistent profit with scalping, then you will have to reduce your losses on losing trades that you make. There are numerous approaches to achieving this, however, the most important one is to ensure that you use a stop loss and to keep it close to bid/ask price. Keep in mind that the idea here is to close out on the losing trades as soon as possible and shift to the next trade.
5. Select the right timeframe
Regardless of the Forex charts that you will be using, you will discover that there are options that will let you choose your preferred trading timeframe. This timeframe can be a minute, day(s) week(s), month(s)or even years. This option is provided by all the Forex brokers so that you can choose the best timeframe that suits your particular needs.
As already said above, scalpers need to make very many trades per day and therefore choosing longer timeframes is not advisable. The recommended timeframe for scalpers is the 1-hour chart; however, you will be making use of the 1-minute, 5-minutes, and 15-minutes charts.
6. Use broker with lowest spreads
Spread is defined as the difference between the bid and the ask price (Spread = Bid Price – Ask Price) and this explains why all the trades begin with a negative return. The main aim of a scalper is to make numerous small profits from tens/hundreds of trades. It will, however, be very challenging to make profits within a very short timeframe when the spread is very wide.
A good market should have tightest spreads and some of the most common markets are EUR/USD, GBP/USD, USD/JPY, USD/CAD, etc. Exotic pairs such as USD/TRY, USD/NOK, etc have a very widespread and would begin your trade at a very large negative position. Whereas such an exotic market would be ideal for long term traders, scalpers should avoid them.
7. Focus on the financial announcements
If you can compare technical analysis and fundamentals of the forex market, you will realize that scalpers are normally technical analysts. However, this doesn’t make you disregard economic calendar forex information or any other data. As a scalper, you should be aware of any major news announcements.
The only variance between a pure fundamental analyst and a scalper is that, as a scalper, you can start trading even without waiting for news to break. The financial news knowledge will only help you understand the right currency pairs, future or stock to trade, but this will not affect your trading day directly.
For instance, if Donald Trump is about to announce changes in the fiscal policies in the United States, you should be very careful with any trade pairs with USD or US stocks. This news can affect the market diverting it away from where your trading indicators were pointing at. It can cause resistance or support levels to be crossed and maybe making you lose your money.
8. Control the number of trades
The sweetest thing about scalping is placing several trades with low stakes. This leaves you with a huge free margin to place other trades. The goal of placing many trades is to maximize profit and a scalper should place several trades simultaneously running at any given time. It is okay with this but you should do it depending on what you have in your trading account. If you have a lot of cash in your account, you can try placing as many trades as possible provided that the margin level is logical.
Note that it is not advisable to place one more than three trades containing one currency. For instance, avoid trading on more than three trades containing USD as the base currency. If you try it and maybe the USD does not perform to your expectations, then it means that you will lose all your trades. Always have different currency pairs if you think of placing several simultaneous trades.
9. Trading sides
Beginners are normally contented with trading on the buy-side. They should stick to that before trying to handle on the short side. A successful scalper should try as much as possible to balance the long and short trades for positive results.
10. Avoid distractions
It is advisable to avoid distractions when doing Forex scalping. The only thing you should focus on when scalping is the markets and chart conditions. You should shut any form of distraction that might make you lose your attention. For instance, you Skype notifications emails, chatting room, etc. By avoiding distractions, you will be able to maximize the use of your small scalping time frame. Remember that the charts move really fast!
The Pros of Scalping Trading
1. Faster Profits
One of the benefits of scalping is making small but faster profits. As a scalper, you will be trading with the possibility of recording higher profits compared to positional trading and/or swing trading. You will not have to wait for days to notice an increment in your balance and this will help to boost your trading confidence. Theoretically, scalpers would see their profits exceed those recorded by position or swing traders over the same timeframe.
2. More Trading Opportunities
Scalping gives you more trading opportunities and therefore you will never have to worry about a missed opportunity. For instance, if you miss a signal on a 5-minute chart, you will have another one within no time. The market is always in a progressive movement and the trading opportunities develop quickly.
Scalping can be a profitable strategy for individuals who put their effort and time to learn it well. It is not an easy strategy for starters to master. A fresh beginning with solid knowledge and a plan can offer the edge you require to scalp successfully. This guide was meant to offer you the basic information required to become a successful scalper. You can as well research on other relevant materials because for sure trading is very broad and you should never stop learning.