4 Basic Forex Scalping Strategy

In this article, we discuss scalping trading strategies and some indicators that may prove useful to improve for forex trading . If you have no time to trade, you can check how to copy trade to help you generate some passive income.

What is Forex scalping?

The strategy of scalping involves trading at small price changes to make profits quickly and once the trade has become profitable. Scalpers need discipline because of the large number of trades and small gains from each trade, and in order to avoid one large loss that could eliminate dozens of successful trades, they must adhere rigidly to their trading system. To seize gains as and when they appear, scalpers will take many small profits without running any winners. Instead of a few successful trades with large winning sizes, a successful trading strategy involves a large number of winners. A key aspect of scaling is the idea of lower exposure risk. Since each trade lasts only a few minutes, there is less risk of an adverse event causing a big move. As well as that, it believes that smaller moves tend to be easier to obtain than larger ones, and that smaller moves tend to be more common.

Best Basic Forex scalping strategies

  • Use stochastic oscillators .

  • Use moving averages.

  • Use parabolic SAR indicators.

  • Use the RSI indicator.

Use stochastic oscillators for scalping

Scalping can be accomplished using a stochastic oscillator. The stochastic indicator measures the current price relative to its range over a recent time period. A stochastic attempts to identify potential turning points by comparing a security's price with its recent range.

By using an oscillator like this, traders are able to capture moves in trending markets, i.e. those that are moving consistently up or down. Price levels tend to close close to the extremes of a recent range before a turning point occurs, as shown below:

Brent on a three minute chart shows that price is rising and the lows in the stochastics (marked with arrows) offer entry points for long trades when black %K crosses above red dotted %D. In order to exit the trade, the stochastic must reach the upper end of its range, over 80 in this case, or cross the bearish crossover, when the %K line crosses below %D, in this case.

With an example below, short positions would be used in a downward trending market. Rather than buying dips, we are now selling rallies. In this case, we will be looking for bearish crossovers along the trend, as shown below:

Scalping based on moving averages

To determine a trend, you can also use moving averages, usually with two relatively short-term ones and a longer one.

We will use a five- and a twenty-period moving average (MA) for the short-term market, and a 200-period MA for the longer-term. As seen in the chart above, the longer-term MA is rising, so we can take positions when the five-period MA crosses above the 20-period MA. An arrow indicates that.

Taking advantage of a long-term MA that is declining, we look for short positions when the price crosses below its five-period MA, which has already crossed below its 20-period MA.

We don't want to try to catch every move with these trades, but rather to go with the trend. It is important to properly manage your risk when scalping, and to take stops to avoid losing a lot of money quickly.

Using the parabolic SAR indicator when scalping

Indicator of market direction, the parabolic SAR contributes to the identification of entry and exit points. This is also known as the Stop and Reverse. Indicators are dots placed above and below price bars. Bullish dots are below the price, while bearish dots are above.

It appears as if the dots are changing positions, thus telling us a trend is about to change.

Taking short positions when the price moves beneath the SAR dots, and taking long positions when the price moves above them, can be done while viewing the chart below, showing the DAX on a five minute chart. Traders may face a lot of losses at times when some trends are quite extended.

Using the RSI for scalping

Furthermore, traders can use the RSI to find entry points that align with the prevailing trend. The price is rising steadily in the first example, as indicated by the three moving averages.

Dips in the trend are good buying opportunities, therefore when the RSI drops below 30, and then rises above it, a possible entry point is created.

Conversely, a ‘sell the rally’ opportunity arises when the RSI reaches 70 and then begins to decline within a downtrend, as we see in the example below.

Getting Started With Scalping

The discipline required for scaling is iron, but it is also very time consuming. As entry opportunities are fewer and can be monitored from a distance with longer-term time frames and smaller sizes, traders can step away from their platforms for longer periods. However, scalping requires the trader's full attention.

There are many potential entry points that can appear and disappear at any time, therefore the trader must stay on his platform. Scalping may not be the best strategy for anyone with a day job or other commitments. The best trading strategy is to select longer-term trades with bigger profit targets.

Successfully executing a scalping strategy is challenging. There are many trades involved over time, which is one of the major reasons. According to research on this topic, more frequent traders merely lose money more quickly and have a negative equity curve. By avoiding scalping strategies and looking for long-term trades rather than short-term trades, most traders would find greater success and reduce their time commitment to trading.

Taking advantage of market movements requires quick reactions and the willingness to forego trades if the exact moment is missed. Many scalpers fail because they chase trades and do not follow stop-loss discipline. The idea of only being in the market for a short period of time sounds attractive, but the chances of being stopped out on a sudden move that quickly reverses is high.

It pays off to be patient and disciplined in trading. Few scalpers demonstrate these characteristics, despite the fact that they are successful. With a longer-term outlook, smaller position sizes and a slower rate of activity, most traders will do better.

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