All successful forex traders use a trading strategy. While there is not one-size-fits all forex strategy that works for everyone, there are popular ones that increase the success rate if applied smartly. One such strategy is scalping and we will explain how it works.
Scalping in forex trading focuses on making profit by capturing small market movements within a very short time. Scalping involves opening and closing multiple positions quickly in order to take small, short-term profits. To be a successful scalper, you will need to act quickly and decisively. You will also need to execute a large number of trades, so it is completely the opposite of holding positions for hours, days, or even weeks.
Scalping is a widely used forex trading strategy
Scalping is the practice of capitalizing on very small market movements by placing multiple orders in a very short time
Only use scalping if your broker provides tight spreads and low/zero commission
Scalping is not recommended for beginners
How does scalping work in forex?
As a scalper, you need to spot market opportunities quickly and act on them almost instantly. The time frame within which this strategy is applied is very short, typically 1 minute. If you decide to use scalping, make sure you do it at a broker that provides tight spreads and low or zero commission or otherwise your transaction costs will skyrocket and wipe out your profits. You cannot be profitable if you catch 3 pips on the average, while your spread cost is also around 3 pips.
It is essential to follow this strategy only at brokers that provide quick order execution and no slippage. Fast order execution helps maximize your profit by catching the price you aimed at quickly. Forex slippage occurs when a market order is executed or a stop-loss closes the position at a different rate than set in the order. As such, slippage can also considerably reduce your potential gains when you use scalping.
Trading gaps can also put your profit at risk, therefore this strategy should be executed when there is a low probability of gaps. You can avoid that by not trading at:
times of high volatility inducing economic news
low-volume trading times
market opening and closing
When you use scalping, you will be exposed to a large amount of market noise, therefore it is hard for beginners to be profitable using this strategy. Applying this strategy involves a lot of psychological pressure, which is another reason it's not recommended for beginners.
If you are a beginner thinking about diving into the world of forex trading, check out our top list of the best forex brokers in the world this year, compiled by our brokerage experts after opening an account at each and testing their services.
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