How to Scalp on the Forex
There are many different ways to trade Forex, ranging from long-term trend-following strategies to short-term pivot or reversal strategies. Scalping in Forex is one of the shortest time frame trading methods. A scalper attempts to make a few "pips" profit on every trade and makes very short duration trades to profit from small price changes in the currency markets. A Forex trader can be a full-time scalper or only use scalping techniques when market conditions prevent the use of other strategies.
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Instructions
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Ensure you are trading with a broker filling orders through an electronic communications network (ECN) or straight-through processing (STP) of trade orders. Avoid Forex brokers using their own dealing desks. To scalp, you want a broker providing typical spreads of two pips or less on the major currency pairs.
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Download the broker's charting software and set up the software using candlestick price indicators at one- and five-minute intervals. If you have not used the broker before, sign up for a demo account and practice trading using simulated money until you are proficient with the broker's order system.
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Select trading indicators to provide guidance of buy and sell points. Support and resistance lines, pivot points and parabolic SAR are some indicators often used by scalping traders. The price chart software will allow you to install these indicators as overlays or in separate boxes, tracking with the currency values.
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Develop profit and stop-loss targets for each trade. Use the daily average true range (ATR) indicator to set a profit goal per trade. For example, a currency pair may have a daily ATR of 100 pips. As a scalper, you may want to make 10 percent of the ATR, or 10 pips with each trade. To limit losses, you could set a stop loss for each trade at six pips. With this plan, even if only 50 percent of your trades are successful, you will be a profitable Forex scalper.
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Scalp trade Forex using your trading plan during those periods when the exchange prices are fluctuating between support and resistance levels or at specific times each day when the market has shown patterns you can profitably trade. A scalping trade should be entered following the guidance of your chosen indicators and you should be out of the trade within several minutes.
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Tips & Warnings
Before scalping with real money, practice with the demo account and adjust your trading parameters until you have a system producing daily profits.
The Forex market measures currency fluctuations in pips, which is the smallest value change for a currency pair, usually the exchange rate to the fourth decimal place. For the standard $100,000 currency lot, each pip is worth $10 and a trader must put up approximately $2,000 in margin deposit. Most Forex brokers allow for the trading of mini and micro lots at 1/10th and 1/100th the size of a standard lot.
Most new Forex traders lose money, often their entire initial deposit. Reasons for losing money include not developing a trading plan, not following the plan and not having a good money management program.
