Scalping for FX Beginners” is an eBook column by FX broker Exness, detailing scalping, a popular FX and CFD trading strategy suited for quick profits through small lot sizes. This strategy involves fast execution and is often based on market reactions to news or volatility, making it favorable during high liquidity periods. Technical analysis plays a crucial role, with indicators like oscillators and moving averages guiding entry and exit points. Although scalping can lead to frequent trading opportunities, it also demands significant time investment and can be stressful, particularly for beginners. The guide discusses various aspects such as timing, technical considerations, and strategies to manage risks and emotions effectively.

We will explain in a clear and understandable way the advantages and disadvantages of scalping and why it is a popular trading method among others.

Let’s learn about scalping, a method that even FX beginners can use to make profits in a short time.

What is Scalping?

Scalping is a trading strategy that involves small lots and quick execution from order placement to settlement, performed in a short period.

Scalping is one of the most famous strategies in FX and CFD trading.

It is perhaps the next most famous after day trading.

Like other trading strategies, it has unique features, merits, and demerits.

Basic Concepts of Scalping

There are mainly two types of scalping:

1. Scalping Based on News and Volatility
2. Momentum-Based Scalping

1. Scalping Based on News and Volatility

Scalping around the release of important news and economic indicators is called indicator trading (or news trading).

The goal of news scalping is essentially to enter immediately after the announcement of significant economic indicators and to profit from the price fluctuations as the market reacts to the information.

Indicator Trading with NFP

For example, if the forecast for the U.S. Non-Farm Payroll (NFP) was 150,000 and the actual figure came out at 250,000, the impact of the news would prompt scalpers to buy USD immediately.

Such trades are conducted over a short period, from 2 minutes to 30 minutes, or as long as the uptrend continues after the announcement.

2. Momentum-Based Scalping

Shorter time frames like 5-minute or 15-minute charts are much less consistent and more uncertain compared to longer time frames like 4-hour or daily charts.

Most of the time, these appear chaotic, but they are not entirely random.

Especially for commodities like crude oil, which sees a vast amount of trading yet remains relatively volatile, they are crucial for those who scalp based on momentum.

Momentum-based scalping aims to utilize these price movements, using primarily simple moving averages, PSAR (Parabolic), and Fast Stochastics (not limited to these) to determine entry and exit points, and take profit or stop loss.

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Timing for Scalping

Scalpers rarely trade outside of trading sessions.

To place many small lot orders, it is necessary that the spread be as low as possible.

One category of scalpers trades immediately after important economic announcements.

However, for the second category, trading can happen at any time during the session hours, except just after the start and just before the end.

Unlike day traders, scalpers do not need to worry much about multiple time frames.

If necessary, trades on 5-minute or 15-minute charts do not need to consider the main trend directions seen on longer time frames like 4-hour or daily charts.

Indicators and Other Technical Considerations

While beginner FX scalpers pay attention to fundamentals starting with data, technical analysis is more important for momentum-based scalpers.

The latter focuses on support and resistance along with technical indicators which become critical.

For many scalpers, moving averages and oscillators are the most important categories of indicators.

Like any strategy, scalpers also use simple moving averages to grasp trends, potential entries and exits, and price bands for support and resistance.

Importance of Oscillator Technical Indicators

On the other hand, oscillator technical indicators are important for detecting overbought conditions.

Some scalpers using momentum establish firm rules to avoid buying in overbought conditions and selling in oversold conditions.

However, beginner FX scalpers may choose to enter even in overheated conditions if it suits their criteria.

Usefulness of Fast Stochastics

The most frequently used oscillator among scalpers is Fast Stochastics.

Line breaks on 15-minute or 30-minute time frames are noted.

Please refer back to the chapter on indicators, under the section Introduction to Stochastics, for more details.

Scalpers using this setting typically buy after the stochastics break above and settle when it breaks below again.

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Elements of Successful Scalping

Compared to other types of traders, self-control is more important for scalpers.

When scalping, there is hardly ever or never a time to set stops.

Therefore, many scalpers manually settle most or all of their trades.

As we have already seen in this eBook column, emotions play a very important role.

Strict Stop Out Rules

Controlling emotions and minimizing greed are crucial for a scalper’s success.

If you are going to scalp, it is essential to strictly enforce stop-outs.

Having a plan is also a very important factor for a scalper to achieve results.

Check the Economic Calendar

Even if it is just to avoid trading before and after unpredictable major announcements, it is necessary to carefully consider the economic indicator calendar each day before placing orders.

Asset management and avoiding excessive risks are also important skills required of scalpers.

During times of rapid movements in short time frames, if the trend moves in an unexpected direction, it usually accelerates very quickly.

Economic Indicator Calendar Here

Main Advantages and Disadvantages of Scalping

Like any trading strategy, scalping has its merits and demerits.

Depending on the trader’s personality, their importance varies.

The biggest merit of scalping is arguably the law of large numbers.

For skilled scalpers, making a large number of trades means that the superiority or inferiority of those trades is determined more quickly.

Comparison with Swing Trading and Day Trading

For example, compared to swing traders, individual trades that result in losses for scalpers are less significant overall.

Like day trading, scalping increases the likelihood of successful trading in securities with high swap points.

Since all orders in scalping are settled about an hour after they are placed (usually much sooner), swap points, even if they are very high, are irrelevant in this trading strategy.

On the other hand, securities like exotic currencies, which have large swap points, often also have wide spreads and are generally not suitable for scalping.

Disadvantages of Scalping

Undoubtedly, the most significant disadvantage of scalping is stress.

Sitting in front of the chart for long hours and handling many orders can be very stressful, especially for beginners.

It may take some time to get used to this.

Scalping is also one of the most time-consuming strategies among the well-known strategies.

If you have a full-time job and a family, it is almost impossible to succeed as a scalper without becoming worn out or neglecting other responsibilities.

Securities Prone to Wider Spreads

That scalpers focus on securities with narrow spreads means that there are also securities that are better left untouched.

Most exotic currency pairs, various stocks, stock indices (indexes), and all cryptocurrency pairs have too wide a spread to be suitable for scalping.

Minimizing this disadvantage is possible with FX broker Exness’s Zero Spread Account or Zero Account.

These accounts have much narrower spread settings based on trading volume, which helps scalpers in their trading.

Determining Suitability for Scalping

Scalping is most suitable for those who can devote a lot of time to trading.

It is more intensive and short-term than day trading, and results, whether good or bad, come out more quickly.

Battling Fatigue

One of the most important challenges scalpers face in practice is battling fatigue.

Scalpers usually take short breaks about every hour.

They do not stick to the chart for long periods at a time.

This is critical for maintaining focus.

After scalping or trading for 45 minutes, take a break for 5 to 10 minutes to rest your eyes and nerves before resuming.

Trading Available 24 Hours

With scalping, you do not need to choose times outside the main session hours of the securities you are trading.

Generally, crude oil (oil) and gold (XAUUSD) are the most commonly traded commodities by scalpers as they are active most of the time.

Basically, you can scalp whenever you like, except on weekends.

However, do not forget that living a life where you scalp all night and sleep during the day might have mental health repercussions.

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FAQs

What is scalping in Forex trading?

Scalping is a quick-trading strategy that involves small lot sizes aiming for profits over short periods.

What are the main types of scalping?

Scalping can be based on news and volatility or momentum, using technical indicators for guidance.

How important are technical indicators in scalping?

Indicators like oscillators and moving averages are crucial for determining entry and exit points in scalping.

What are the advantages of scalping?

Scalping offers the potential for quick profits and frequent trading opportunities.

What are the disadvantages of scalping?

It can be highly stressful and demanding, requiring significant time and focus, particularly challenging for beginners.

How does news impact scalping strategies?

News releases can cause significant market volatility, which scalpers exploit to make quick profits.

Is scalping suitable for every Forex trader?

Scalping requires a lot of time and dedication, making it less suitable for those with full-time jobs or limited time.

What is the role of oscillators in scalping?

Oscillators help identify overbought or oversold conditions, aiding scalpers in timing their trades.

Can scalping be done at any time during the trading day?

Scalping is best done during high liquidity periods, though it’s possible at any time except just before the market closes.

What should a beginner know before starting scalping?

Beginners should understand the risks, have a clear strategy, and be prepared for the intensive nature of scalping.