Top 5 Tips on Forex Scalping Every Trader Should Know
If you want to get exposure to the smallest price moves out there, then scalping is likely your best bet (quite literally). But keep in mind that scalping carries a high dose of risk and shouldn’t be taken lightly.
If you want to become a successful scalper, arm yourself with the right knowledge on the matter, become well-prepared and understand how volatility and leverage can be used to help you be successful in scalping.
With that said, let’s look at the top five tips that will help bring out the scalper-trader in you.
1. Pick Your Active Time Wisely
Scalping is not only about speed—timing matters a lot, too. The best time to scalp is when the market’s got its caffeine buzz—usually during the major trading sessions: London, New York and Tokyo.
If you want to go even more niche and brag about it to your uncle at the Thanksgiving table, consider doing your scalping at news times and report releases. For example, the monthly nonfarm payrolls report, commonly known as jobs data, can shake the forex market in a matter of seconds, presenting nice trading opportunities for scalpers.
You want high liquidity and tight spreads because in scalping, every pip counts. And, as we mentioned above, volatility is what will power your positions. The more volatile the trading instrument is, the better your trading result could be. Volatility is your friend—just make sure you’re prepared to ride the wave without getting wiped out.
For some consistent daily action, look at the overlap between the London and New York sessions. This is when the big players come out to play, and the market is at its most volatile. It’s the time when US banks and institutional investors log in and start their currency exchanges in the billions of dollars. Forex is the largest market in traded volume where every single day more than $7 trillion worth of currency is being exchanged.
This daily dynamic can present attractive scalping opportunities. Keep in mind, however, that scalping can go either way—be prepared and protected from potential downside.
2. Stick to the Major FX Pairs
When it comes to forex scalping, not all currency pairs are created equal. Stick to the major ones—EUR/USD, GBP/USD, USD/JPY and the like. Why? Because they usually have the tightest spreads and the most liquidity, which is just what you need when you’re aiming for those quick gains as you’re moving in and out of positions in seconds or minutes.
Exotic pairs might look tempting with their wild swings, but they often come with wider spreads. As a scalper, you’re in the business of speculation with precision and major pairs give you that sweet balance of volatility and stability.
3. Use Leverage in Moderation
Leverage—the tool that can make or break a scalper. On the one hand, leverage can amplify your gains faster than you can say “pip.” (Especially if you try to say it during the nonfarm payrolls release.) On the other hand, it can wipe your account clean before you’ve had your morning cup of Joe. The key? Respect the power of leverage.
A common mistake novice scalpers do is to go all-in with high leverage, thinking they’ll multiply their profits. But if the trade goes south, they might be left with a blown account. Start with lower leverage and scale up as you gain experience. Scalping is a marathon of sprints where breaks are needed so you can plan your next move. It’s not about hitting a home run; it’s about hitting lots of singles.
4. Plan Where Get Out Before You Get In
Knowing when to exit is just as important as knowing when to enter. In fact, it’s maybe even more important. You need to have a proper exit strategy before you even think about clicking that buy or sell button.
Set your take-profit and stop-loss levels before entering a trade. Don’t just wing it and hope for the best. Scalping is about discipline. If your target is hit, take the profit. If your stop-loss is triggered, accept the loss and move on. Hesitation may cost you and greed may be even worse.
5. Leave Emotions Out of Your Trading Scope
Scalping is a mental game. The speed, the pressure, the quick decisions—it’s easy to get caught up in the heat of the moment. But the best scalpers know how to keep their cool. Emotional trading is a recipe for disaster, especially when you’re making multiple trades in rapid succession.
Stick to your strategy, follow your rules and don’t let a few losses throw you off your game. It’s not about winning every trade—that’s not a likely scenario in the volatile area of scalping. Instead, it’s about making more money on your winners than you lose on your losers. Stay focused, stay disciplined and keep your emotions in check.
Final Considerations
Forex scalping is possible with the right mix of preparation, strategy and mindset. It’s fast-paced, intense, and requires a level of focus that would make a Zen master proud. But for those who can handle the heat and rein in the urge to get emotional, it offers an exhilarating way to profit from the market’s smallest moves.
Armed with these top five tips, you’re better equipped to dive into the world of scalping and come out on top. Ready to give it a try?
Sign up for an account with OspreyFX and test your scalping strategy today.