Scalping: How to Trade on the Smallest Time Frames

 Scalping is a form of Forex trading where a trader opens and closes a position manually within a few minutes of each other. The premise behind scalping is that because the Forex market is highly leveraged, has large intra-day volatility and has low transaction costs when compared to the equity or commodity markets, it is possible for a trader to make a profit within minutes if the market goes his way.

Scalping in Forex can be a profitable way of trading the market if the trader knows what he is doing, but it can also turn into a nightmare if the market conditions at the time of the trade prove extremely overwhelming. To be very honest here, scalping requires some degree of trading proficiency and should not be attempted by beginners.

Basics of Scalping

The trading process in scalping is as follows:

       -          Select a time frame with which to do your analysis.

      -          Go to your trading platform order button, select the market order type, and adjust the trade volume and any other parameters relevant to the trade.

      -          Execute the trade.

      -          Wait for the trade to move into your profit level and then close the trade manually.

Usually, the market order type is used (not pending orders), and the trader typically uses high trade volumes to make a maximum profit from the few number of pips that are made in scalping. Typically, a scalper will aim for 5 to 10 pips during a normal trade, and as much 20 pips during a high-impact news release.  

In analyzing a trade for a scalp opportunity, there are things the trader has to look at. Firstly, he has to consider the spread of the currency pair in question. The scalper will typically favor a high-liquidity, low-spread currency pair for a scalp. Currencies that fit this profile are the majors such as the EURUSD and the Yen crosses such as the EURJPY and GBJPY.

Using illiquid pairs with high spreads such as the EURNOK is not going to work. For a scalp to be successful, it is just common sense that the pair chosen has to quickly eliminate the spread deficit on the currency pair and move into profit fast. Do not forget that typically higher trade volumes used behooves the trade to become profitable quickly or else the losses will be beyond the draw-down ability of the trader’s account. 

Another factor to consider is the use of the appropriate time charts to perform the analysis. A trader cannot expect to use the 4-hour or daily charts for a scalp. Use of the higher term charts is allowed but only for the purposes of determining the trend and certainly not for trade entries and exits. Once the trend shows on the higher time frame charts, and the trade bias is determined, the trader should use the shorter time frame charts for trade executions. The 1-minute and five-minute charts are the best, but the trader can also use the 15-minute chart for scalping. 

Article was written by Alexander Collins, author of Forex trading blog – Pipburner. Visit blog if you want to download cool Forex freebies as Forex calculators and indicators.

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