Have you ever heard the term Forex Trading Scalping but still don’t understand what this method is? Join Forex Trading to learn what scalping is and how to apply this method in the Forex market.
Learn about Forex trading scalping
Before applying the Forex scalping method, you need to learn what the scalping method is and the characteristics of this method. Who is suitable for this short-term scalping trading method?
What is Scalping? Characteristics of Forex trading scalping
Scalping is a short-term strategy of executing many buy and sell orders during the day. Traders seek to profit from small price fluctuations in the market, often lasting only a few seconds to a few minutes. This requires extreme concentration, quick reflexes, and accurate decision-making ability from investors.
Scalping-style traders do not expect to gain large pips. Instead, they only need small price fluctuations to make a profit. Therefore, even when the market is sideways, scalpers can still make profits.
The prerequisite for success with this strategy is that the trader must have discipline and good risk management ability. They never hold positions overnight, but only focus on short-term opportunities
Characteristics of Forex trading scalping
Scalping often uses small time frames such as M5, and M15 to execute trades. This strategy depends heavily on technical analysis of price charts. Traders need to spend a lot of time monitoring and analyzing charts. The trading volume of each order is relatively large to maximize profits. The number of orders executed in one transaction can be up to many times a day. The profit target for each transaction is only small.
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Who is Forex Scalping suitable for?
The Scalping strategy is suitable for people who can withstand high pressure and prefer agility. Investors have enough time to monitor the market regularly. Besides, traders who choose to “surf” need to have a solid knowledge of technical analysis and the ability to control emotions. These are important factors for success with the Scalping method.
Why should you choose the Forex trading scalping method?
After learning about scalping, you are probably wondering: “Is this the right strategy for me?” Let’s find out the reasons why many traders choose forex trading scalping
- Ability to make quick profits: One of the biggest advantages of scalping
- allows you to generate profits in a short time. Instead of waiting for a big long-term trend, scalpers take advantage of small price fluctuations to profit from many short trades.
- Minimize overnight risk: Due to the short order holding time, usually only a few seconds to a few minutes, you will avoid the risks of unexpected price fluctuations that occur overnight or due to news events.
- Improve trading skills: Scalping requires high concentration and the ability to quickly analyze the market. Applying this method will help you practice your chart reading skills, use technical indicators, and make accurate trading decisions.
- Suitable for small capital: With small capital, you can still participate in scalping trading and accumulate profits. This is especially suitable for those who are just starting out or want to test a new trading strategy.
- Increase the ability to take advantage of leverage: Due to the small profit per trade, scalpers often use leverage to amplify profits. However, careful risk management should be noted when using leverage.
The most effective way to apply Forex scalping strategy
To apply an effective scalping strategy, traders should learn the forex scalping method according to the SELL/BUY rule. In addition, traders also need to understand the forward and reverse forex scalping methods.
Forex scalping method follows the SELL/BUY rule
SELL rules:
The last candle must be the highest candle of the last 5 candles, indicating that a downtrend is taking place. The last candle must be a bearish candle confirming the sell signal. Stoploss is placed a few pips above the top of the last candle to limit risk. Take a profit of at least about 10 pips to take advantage of short-term price fluctuations.
BUY rules:
The last candle must be the lowest of the last 5 candles, showing that an uptrend is taking place. The last candle must be a bullish candle, confirming the buy signal. Stoploss is placed a few pips below the bottom of the last candle, to limit losses. Take profit of at least about 10 pips, to maximize profits from short-term price fluctuations.
By following these SELL/BUY rules, traders can take full advantage of short-term price fluctuations in the forex market.
Forex Trading Scalping method with and against the trend
In addition to applying the SELL/BUY rule, traders need to be flexible in conducting scalping trades with and against the trend. This is a shortened quick trading strategy on a small frame.
A system that uses 2 indicators available on MT4 and based on price action determines the entry point. Indicators are RSI 6, EMA 21, and SMA 50 (in the image below, EMA 21 is the blue line and SMA 50 is the red line). With the strategy in the M5 or M15 time frame (more often use M15).
Note: It is recommended to do demo trading or backtesting before trading real money.
Entry point:
Strategy to counter the trend
A pin bar candlestick appears and RSI creates a divergence
From the image above we see that the Pinbar is beautiful, the divergence index is beautiful => The entry point is beautiful.
RSI divergence is nice, pin bar is nice => Close the sale now
For example, executing a buy order
- Price creates pin bar candlesticks in an uptrend
- RSI creates a bearish divergence compared to the price
- Enter a sell order in the green price zone
Strategy to beat the trend
- Just be aware of the main trends
- A beautiful pin bar candle appears
- If more RSI creates divergence, even better
Identify trends:
- The trend will be down when the EMA 21 is below the SMA 50. The trend will be up when the EMA 21 is above the SMA 50
Illustration of sell order:
- During an uptrend, the price creates a pin bar candle
- Enter a sell order in the green price zone
Take profits, cut losses
- Stop Loss: Place the stop loss a few pips near the top/bottom of the pin bar.
- According to the take profit/stop loss ratio of 2:1
Note: You should backtest and test on a demo account and strictly manage risk when using this method. Besides, you should focus on certain currency pairs with low spreads such as EURUSD, GBPUSD, EURJPY, and USDJPY. Investors need patience, discipline, good capital management, and effective forex trading strategies that bring profits.
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Difference between Scalping Forex and Day Trading
Scalping forex and Day Trading are two short-term trading strategies in the foreign exchange (Forex) market. Join Forex Trading to learn the difference between these two strategies
Scalping Forex Strategy
- Transaction time is very short, usually from a few seconds to a few minutes.
- The goal is to make profits from small price fluctuations.
- Use technical indicators and patterns to find quick trading opportunities.
- Higher level of risk.
- Requires concentration, trading discipline, and high psychological control.
- Time to receive results quickly, check profit/loss immediately.
Day Trading
- Trading hours are longer and can last half a day.
- The goal is to profit from larger price fluctuations.
- Based on an analysis of basic factors affecting the market.
- Takes less risk than surfing.
- Requires analytical skills and understanding of market trends.
- It takes longer and waits for results near the end of the day.
Each method has its own advantages and disadvantages, traders need to choose and apply it in accordance with their own knowledge, skills, and psychology.
summary
Forex Trading Scalping is a potential strategy that requires investors to have thorough preparation and practice before applying. Hopefully, through the above article, you have clearly understood what scalping is and how to apply this strategy effectively in the Forex market. Don’t forget to follow Forex Trading to update useful knowledge about foreign exchange investment.
FAQ
What is Forex Scalping?
Scalping is a short-term trading strategy that aims to make small profits from trades that take place over a short period of time, usually a few minutes.
Which time frame should I use when surfing?
Traders often use the M5 or M15 time frame to apply the Forex Trading Scalping strategy. However, choosing the appropriate time frame depends on your trading style and risk tolerance.
Things to note when applying Forex Scalping strategy?
Before trading real money, backtest and test on a demo account. When scalping, traders should choose the right time to trade and manage risks carefully.
