Scalping Strategies in Forex and the Stock Market: What Scalping Is, Training and Examples

The stock market lets traders earn using different strategies. Scalping in Forex lets the same traders make profitable trades too, but it can’t be called risk-free either: there are risks in both the stock market and the currency market, whatever type of strategy is used.

What scalping is in Forex

Literally, scalping means cutting off the top of something. On the exchange, scalping means a trader reacting quickly and opening/closing trades within a short time.

This can be done in both the currency and the stock markets. Experienced traders note that for scalping it doesn’t matter what you trade — what matters is how market participants react.

Among stock traders scalping is also called «pipsing». The basics of scalping help you understand how the exchange works and earn. Scalping strategies are believed to work best when trading currency pairs, since world currency rates change every second.

To scalp on the stock exchange, you need to watch the chart and analyze the available data. This strategy can use a system without indicators. The number of trades is unlimited, and a trader can make 150-200 trades a day.

Advantages and drawbacks

The scalping strategy, like a number of other ways to earn on the stock exchange or any exchange (including forex), has positive and negative sides.

• a simple system;
• high trade speed;
• fast profit;
• convenient trading.

Another advantage of playing for fast profit is that it suits beginners and doesn’t require a large starting capital.

The scalping strategy lets a beginner without much analytical knowledge get started and make a first profit. It also gives basic ideas about how the exchange works.

To become a scalper, you don’t need a large starting capital or to play big. It’s enough to see what a line chart looks like and how the system works (you can do this for free on a demo account), and within a few minutes you can get started.

Once you understand what scalping is, remember that the process consists of many quick trades lasting 1-2 seconds, so you can follow currency pairs on the way to work or during a lunch break. Profit is credited to the trader’s account quickly, and once the set amount is reached it can be withdrawn to a card or e-wallet.

• the amount of time it takes;
• a high risk of losing money;
• the speed of decision-making;
• the need for intense concentration.

The method takes a lot of the trader’s time to earn a profit that can be withdrawn, even though trades are quick. Also, by misjudging their strength, a scalper risks losing the entire deposit.

Those who understand what scalping is recommend not risking more than 5% of the account on each trade. You should also limit your own income: with $150 on deposit, trade with $25, and when your earnings reach $25, leave the market and stop trading for the day.

Signs of scalping

Since the volatility of currency pairs lets traders earn 100 to 200 pips per move, you need to know how to recognize scalping.

• using M1-M30 timeframes;
• working with market orders;
• a short Stop Loss;
• a short Take Profit;
• focus on pips.

An example strategy — «Jumper»:

Choosing a broker for scalping

Once you understand what scalping is in trading, you need to choose the right broker to trade by the rules.

The broker should:

• accept all short-term trades;
• handle currency pair spreads properly;
• offer a low spread;
• open trades quickly when signals appear;
• not use requotes in scalping;
• have a good long-standing reputation.

Not all companies that let clients trade on their platform are fair to short-term trades lasting no more than 4-5 minutes. Some dealing centers don’t accept such trades.

Here are brokerage companies that allow scalping:

Also, to reduce the risk of losses, choose a broker with a low spread and assess the difference in currency pair rates. Opening trades without requotes lets you take profit at the right moment.

Risk management

Once you understand what scalping is, you need to minimize the risk of losses.

To do this, a trader should:

• stay in control;
• stop trading when a «High» mark appears in the calendar;
• avoid the American session;
• stick to trends.

Patience and knowing when to stop are good skills for a trader. Beginners are advised not to grow the deposit too fast. Also, don’t trade when the news publishes information that may affect the market and currency prices. Such news is marked «High».

Scalping in trading requires focus and attention. By watching the chart and price changes, you can quickly open a trade and earn.

Scalping: Stop Loss and Take Profit

Protective Take Profit and Stop Loss orders help close a trade at the right moment and minimize losses while locking in profit. Take Profit locks in earnings when they reach the desired level, and Stop Loss limits possible losses. These functions are useful when the trader is away from the screen.

What to trade

On the global stock market you can trade securities or earn on futures contracts. Such complex operations are for experienced traders who understand market trends.

While learning scalping, beginners wonder what is best to trade. For those who have only recently become interested in the markets, experts recommend starting with stocks or currency rate differences.

Psychology

Experienced traders note that scalping is a mix of the trader’s resilience and the chosen strategy. Those who can’t stay calm and control their emotions won’t manage Forex scalping strategies.

A scalper must be ready to trade throughout the entire exchange working day. Trading is constant stress, and a trader must prepare for it to keep the situation under control.

Guide: 5 steps to scalping

When learning what scalping is, go through 5 steps to confident trading.

It is recommended to determine:

• market conditions;
• which instrument to trade;
• the trend;
• key support and resistance levels for the period;
• your own position in the market.

Once you understand why this matters, you can become an experienced scalper and earn.

Instruments for scalpers

Scalping can be done with instruments such as:

• stocks;
• currency pairs;
• indices;
• metals;
• commodities.

Experienced traders recommend studying all instruments and choosing a suitable one. There’s no need to take on every available option — it won’t bring profit.

• An example strategy — «Infinity»:

Basic scalping strategies

Over the years of the global exchange market, traders have developed dozens of strategies, many of which are presented on our site.

• trend scalping;
• trend channel scalping;
• the Puria method;
• 3 moving averages;
• «Victory»;
• a popular Forex strategy.

Trend scalping

The first scalping strategy is skimming the cream along the trend. When trading a rising price, wait for a pullback and calculate the entry point by mentally dividing the distance covered into 3. After the pullback the trend will start moving again; open the trade when the price has covered one third of that distance.

The Stop Loss is placed below the trend level after the pullback, and the Take Profit at the level where the price was before the pullback. When the trend reaches the end of the previous move, the Stop Loss is moved to breakeven.

Scalping in a trend channel

You can choose either a rising or a falling price channel. Both scalping strategies work the same way: in rising channels you buy, in falling ones you sell.

Enter when the price moves up, with a Stop Loss the width of the channel. The Take Profit is set at half of its width.

• More on this trading principle in a separate article on our site (in Russian).

The precise Puria method

The Puria strategy is based on the MACD indicator and is considered one of the simplest strategies. To use it for scalping futures and forex, you need to know how the moving averages (MA) are set up.

With Puria, MACD applied to Close is set to 5/26/1. Before the session, the MAs are set to Low with shift 0 and periods 85 and 75. For Close, set period 5, shift 0, Simple. The timeframe is M30. A Stop Loss may be omitted.

Trading starts when all the MAs cross in the indicated direction. Buy on an upward move, sell on a downward one. Wait for the MACD to touch the zero line. The trade is closed when the MA turns back.

3 moving averages

Scalping stocks or currencies can use the three moving averages method. Here 3 MAs with periods 3, 5 and 8 are used. When the moving averages cross upward, buy; downward, sell. The trade is closed when the indicators turn around.

The «Victory» system

Forex scalping strategies include the «Victory» method. It needs the TMA, SSRC and Currency Power Meter indicators. Before starting, set the timeframe to M1 or M5.

• the price touches the lower TMA band and turns;
• the SSRC channel is wider than 10 pips and points up;
• the Currency Power Meter shows strength of the base currency;
• on M5 the price is above the middle level.

With the «Victory» strategy, the Stop Loss is set at 15 and the Take Profit at 5. Exit when the take profit is hit.

Just a popular Forex strategy

Traders call the last method «the Forex scalping strategy that beats everything». It is indicator-free and requires opening 4 charts of a currency pair with Japanese candlesticks.

The first chart is set to 1 hour, the second to 30 minutes. The third shows the short-term trend with a 15-minute step, and the fourth 5 minutes.

When the candles on all charts turn white (green on our chart), set a Stop Loss 15 pips below the entry point and open the trade. When the profit reaches 15 pips, move the Stop Loss to breakeven.

The Take Profit is set 30 pips above the entry point. The same method works with black candles.