How to Start a Forex Scalping Strategy

Written by Steven Hatzakis
Fact-checked by Joey Shadeck
Edited by John Bringans

December 11, 2024

Scalping requires quick decision-making, discipline, and a solid understanding of market dynamics.

Whether you're diving into forex scalping for the first time or looking to refine your existing scalping strategy, my guide to forex scalping will strengthen your understanding of this strategy's fundamental principles and introduce you to some advanced strategies and techniques.

Learn more about forex

What is forex scalping?

Forex scalping is a popular trading strategy that involves making multiple trades throughout the day with the goal of capitalizing on on small price movements in the forex market. Scalpers attempt to capture profits on price changes in the forex market via pure arbitrage, statistical arbitrage, or high-frequency trading.

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Key principles of forex scalping

Over the last 20 years, the forex markets have become increasingly efficient – making it harder to find (and profit from) scalping or arbitrage-based strategies. That said, because prices can vary across venues, opportunities still do exist. It’s important to note that many brokers prohibit strategies that attempt to profit from server delays or stale prices, also known as lagging prices. And the fast speed of market price updates makes it even more difficult to execute on any arbitrage opportunities that you may find.

High-frequency trading

Scalpers typically execute dozens or even hundreds of trades in a single day. Doing this manually is far more intense and exhausting than trading algorithmically via API or using an automated trading system (i.e. a trading bot). Sometimes scalpers aim to open and close positions within short time frames, (minutes, or even seconds), capturing minimal price movements that can accumulate over time. Check out my guide to the best brokers for high-frequency trading to learn more.

Arbitrage

Arbitrage in forex markets occurs when prices differ across trading venues, and a trader attempts to buy the lagging price and sell the leading price on the basis that the lagging price should correct, resulting in a profit. Of course, these predictions do not always turn out as expected and can result in significant losses.

In some cases, a lagging price may represent a legitimate tradeable price in which prices between different venues differ. In other cases, prices between venues update at different times, creating a latency-driven opportunity.

Short Holding Periods

Scalping positions are usually held for very brief periods, minimizing exposure to market fluctuations. But as a result, in order for returns to be meaningful, the trade sizes can be larger relative to your balance, which can increase the risk proportionally. Thus, proper risk-management is required to turn a net profit, and depending on your win-to-loss ratio or how often you are right on each scalping trade.

Small Profit Targets: Because each scalping trade aims for a small number of pips, scalpers rely on volume to generate profits, both in terms of trade size and frequency of trades.

Time frames and pips

Scalping typically occurs on shorter timeframes, such as 1-minute (M1) or 5-minute (M5) charts. These shorter intervals provide more trading opportunities and help to identify micro-trends. Some brokers provide charts that feature even smaller time frames, including 30-second, 15-second, and even 5-second candle charts (learn more about the different kinds of forex charts by checking out my guide to the best forex charts.

zoom_inGetting granular

If you want the smallest possible granularity, tick charts can also be a helpful tool in your scalping analysis arsenal, as they reveal every single price update as a new “tick.”

A note about pips: Since scalpers target small price movements, even a gain of 5-10 pips per trade can be significant when executed multiple times. For this reason, it’s crucial to size your positions properly when scalping. Learn more about pips in forex and check out my forex pip calculator for a quick, easy way to calculate trade sizes in pips.

Liquidity and volatility

High liquidity ensures that orders can be executed quickly without significant price slippage. Major currency pairs like the EUR/USD, GBP/USD, and USD/JPY tend to be preferred for forex scalping strategies due to their high trading volumes. That said, scalping opportunities can exist across other major pairs, as well as cross-currency pairs and even exotic and emerging market currencies. Scalpers just need to be mindful of trading volumes and how often prices change, as well as the spreads which can be higher on less liquid currency pairs. These higher costs can offset any small gains from a successful scalping trade.

floodVolatility and scalping

Moderate volatility is ideal for scalping. With low volatility comes fewer opportunities, while excessive volatility can increase risk.

Leverage

Leverage allows traders to control larger positions with a smaller amount of capital. While this can amplify profits, it also increases potential losses. Responsible use of leverage is critical. Traders should adhere to strict risk management rules to avoid significant losses. Learn more about leverage in the forex market and check out my guide to the best high leverage forex brokers (or use my leverage calculator to calculate your leveraged forex trades.

Market making in scalping

Market Makers vs. ECN Brokers: Scalpers tend to prefer a variety of execution methods to ensure their strategy is versatile across brokerages, including market-making execution (provided by what’s known as a market maker broker) and agency execution (provided by ECN and STP brokers). Scalping is both execution-sensitive and price-sensitive, so the best brokers for scalping offer a good balance of both good execution and low spreads.

Know your execution method: Generally speaking, it is good practice to know what execution method your broker is using for your specific account type, and the execution methods available to you. Some brokers may change your execution method with or without notice, depending on how they manage their trading desk, regardless of whether they are a market maker or agency broker.

A note on low spreads: Low spreads are essential for scalping strategies, as high spreads can eat into any small profits being generated per trade. However, even low-spread accounts (sometimes advertised as “zero spread brokers”) can experience negative slippage, which can, depending on prevailing market conditions, can impact a scalpers ability to generate profits.

For instance, let’s assume you’re scalping the EUR/USD with a price of 1.0866, aiming to capture 5 pips of profit per trade. You’ve identified a small range and are using a Bollinger Band scalping strategy on a 1-minute chart.

Entry Price: 1.0866 (mid-point of the Bollinger Bands)
Take-Profit Target: 1.0871 (+5 pips)
Stop-Loss: 1.0861 (-5 pips)
Spread: 0.2 pips (very low spread)

If negative slippage of 2 pip occurs during execution, the trade could get filled at 1.0868 instead of your intended 1.0866. In this case, the effective entry price would be higher, making it harder to reach your take-profit target – or could result in a larger loss if the price reverses to your stop-loss level.

Popular forex scalping strategies and indicators

Bollinger Band scalping

Bollinger band indicators are a popular method for scalping on lower time frames, and below is an example of how this indicator can be implemented in a scalping strategy (I’ve also included an example of code that I wrote.

How to use bollinger band indicators:

Overview: Bollinger Bands consist of a moving average and two standard deviations plotted above and below. They help identify volatility and potential price breakouts, including when prices are potentially overbought and oversold.

Entry Points: Buy when the price touches the lower band and sell when it touches the upper band. Traders can scalp using this indicator on small time frames such as a minute chart, for example, either manually or coding it into a trading bot.

Confirmation: Use additional indicators like RSI for confirmation to reduce false signals and noise on smaller time frames.

The code for such a bot in Pine Script would look like the image below. (Note: This image is an example for educational purposes, it’s not meant to be used for real trading):

Moving averages for scalping forex

Moving averages (MAs) smooth out price data to help traders identify trends and potential entry/exit points. The moving average is a basic primitive in technical analysis that shouldn’t be overlooked. Moving averages are particularly useful in scalping because they simplify the price action and help traders follow the market's momentum in fast-paced environments.

constructionA note on moving averages:

It’s important to remember that MAs are common, simple analysis tools widely used by investors, which could limit their effectiveness (depending on your approach and implementation).

How to use moving averages in scalping strategies:

Common types of MAs:

Simple Moving Average (SMA): The SMA calculates the average price over a specified period. For example, a 50-period SMA on a 1-minute chart would calculate the average price over the last 50 minutes. This smoothes out short-term fluctuations and helps identify the general trend.

Exponential Moving Average (EMA): The EMA gives more weight to recent prices, making it more responsive to current price action compared to the SMA. It’s popular for scalping due to its ability to adapt quickly to rapid price changes, providing more timely signals for short-term trades.

How to use MAs for scalping:

Crossover strategy: A buy signal occurs when a shorter-term MA crosses above a longer-term MA; a sell signal occurs when it crosses below. For instance, a bullish event would be a 5-period MA crossing above a longer-term MA, such as a 20-period, resulting in a buy signal. Conversely, a sell signal occurs when the short-term MA crosses below the longer-term MA. This strategy can work on lower time frames (e.g., 1-minute or 5-minute charts) in the context of scalping when you are searching for quicker trends that can change rapidly.

Trend Identification: MAs can also be used to determine the overall trend direction. For example, if the price is consistently above the 50-period EMA, the market is in an uptrend, and traders might be looking more actively for buying opportunities. If the price is below the 50-period EMA, the market is in a downtrend, and selling opportunities are favored. But additional indicators could provide conflicting signals, thus it’s important to use a variety of time-frames for confirmation.

Forex RSI scalping

The Relative Strength Index (RSI) measures the speed and change of price movements, indicating overbought or oversold conditions. Generally speaking, when the RSI moves above 70, it indicates that the asset may be overbought, signaling a potential sell opportunity. Conversely, when the RSI drops below 30, it suggests the asset may be oversold, signaling a potential buy opportunity. The RSI is also used extensively in other forex strategies, such as trend trading (learn more about the trend trading strategy and see my picks for the best brokers for trend trading).

How to use the RSI for scalping:

Example: On a 1-minute chart, if the RSI moves above 70, a scalper could sell in anticipation of a small reversal. Conversely, if the RSI falls below 30, a trader might enter a buy position expecting a quick upward rebound.

Important note on divergence: When the price and RSI move in opposite directions, this divergence can signal a potential price reversal.

Example of RSI divergence: If the EUR/USD price makes a new high but the RSI forms a lower high, this divergence can signal a weakening trend, providing a sell opportunity.

Bullish Divergence: When the price makes a lower low, but the RSI forms a higher low, this suggests a potential reversal to the upside, making it a buy signal.

Bearish Divergence: When the price makes a higher high, but the RSI forms a lower high, it suggests a possible reversal to the downside, indicating a sell signal.

1 minute scalping strategy

A 1-minute scalping strategy is designed to take advantage of quick, small price movements on the 1-minute timeframe, offering multiple trading opportunities throughout the day. Like any short time frame, a 1-minute time interval can be ideal for traders who thrive in fast-paced environments and have the ability to make quick decisions.

Scalpers tend to open larger positions relative to their balance, and exit trades quickly, especially when small profit targets are hit, or price starts to reverse. As such, the 1-minute timeframe is highly volatile, so it’s crucial to set tight stop-loss and take-profit levels when scalping. It’s worth noting that this approach can be used on other small time frames, such as a 30-second chart, or 5 minute chart, for scalping, but adjustments may be necessary to suit your scalping needs.

lightbulb_outlinePro tip:

A stop-loss of 5 pips and a take-profit of 8-10 pips is typical for 1-minute scalping strategies, although it can vary depending on your needs and the underlying currency pair and market conditions.

In the example 1-minute chart below from Forex-GPT.ai (a forex trading analytics software powered by AI that I authored), we can observe that the price is below all of the moving averages, indicating a bearish trend, and nearing the lower Bollinger Band and Donchian lower band.

Risk management for scalping

Why scalping isn’t for everyone

While forex scalping can be profitable, it's not suitable for all traders. It’s a high-risk strategy that can result in substantial losses. Manually executing a scalping strategy requires a lot of experience and the ability to sustain focus and operate under intense pressure while handling potentially large trades.

Profits can be made quickly with this strategy, but losses can be realized just as fast fast when scalping. Take it from someone with decades of experience in the forex market – a single small mistake can be extremely costly. I would not suggest this strategy for beginner forex traders.

Challenges when scalping:

High stress levels: The fast-paced nature of scalping requires constant attention and quick decision-making, which can lead to heightened adrenaline and increased stress levels. This can take a toll on any trader; exhaustion can also lead to poor decision-making, which can be fatal to any trading strategy.

Discipline: Emotions like fear and greed can lead to mistakes. Strict adherence to a trading plan is essential. The best traders know in advance what to do in various scalping scenarios so that they don’t need to make any decisions on the spot.

Technical Demands: Scalping requires a variety of advanced tools. Scalpers require a reliable trading platform, fast internet connection, and VPS (Virtual Private Servers) for automated trading. You may also need to develop a sophisticated strategy and the ability to carry out complex calculations while implementing your scalping methodology.

Broker support: Scalping can create challenges with brokers in certain cases, such as when a trade dispute arises if the broker suspects you are trading on latency-driven opportunities, which may be prohibited depending on your customer agreement (another reason it’s important to read the fine print).

Key risk management techniques:

Effective risk management is crucial for long-term success in scalping. Here are some common risk management techniquest that are a good practice to include in your own forex trading strategies.

Stop-Loss Orders: Always use stop-loss orders to limit potential losses.
Position Sizing: Use a consistent percentage of your capital for each trade (commonly 1-2%).
Risk-Reward Ratio: Aim for a risk-reward ratio that justifies the frequency of trades, even if it's lower than in longer-term strategies.

Forex scalping tips

Enhance your scalping strategy with these practical tips I’ve picked up over the last 25 years as an investor, forex trader, and reviewer of forex brokers and trading products.

Best currency pair for forex scalping

Major Pairs: The EUR/USD, GBP/USD, USD/JPY, and USD/CHF all tend to offer high liquidity and tighter spreads, which can be the ideal conditions for forex scalping strategies.

Exotic Pairs: Generally speaking, it’s best to avoid exotic currency pairs when implementing a forex scalping strategy. They tend to have higher spreads and lower liquidity, which make them less suitable for scalping. Learn more about currency pairs in my guide to currency trading.

Best time of day for currency scalping

While the best time of day for scalping may vary depending on the market conditions and your specific goals, it is useful to be aware of the forex market hours and any key economic news events that could cause volatility.

Peak Trading Hours: London and New York sessions (8 AM to 12 PM EST) typically offer higher volatility and liquidity (read my complete guide to the forex market hours to learn more).

News Releases: Be cautious around major economic announcements, which can cause unpredictable price movements. Using a broker’s economic calendar can help you stay up to speed on upcoming news events. Some of the best forex brokers offer integrated economic calendars within their trading platforms and mobile trading apps.

Forex scalping tools and software

Leveraging the right tools can enhance the efficiency of your forex scalping strategy. This can include broker platforms, third-party software, and trading tools. Understanding how these come together can help complement your approach to scalping whether in forex or other derivative and securities markets. Here are some important pieces of the scalper's toolkit:

Important tools for scalpers

Custom Indicators: Enhance standard indicators to suit your specific needs.

Automated Trading Systems (EAs): Implement algorithmic strategies for consistent execution either through speciality platforms or via broker APIs.

VPS Hosting: Ensures your trading platform runs 24/7 without interruptions and usually at closer proximity to your broker, via co-location.

Trading Platforms for scalping

Many of the best brokers for scalping offer sophisticated proprietary trading platforms with advanced features, alongside popular platforms from third party developers. I’ve tested dozens of trading platforms and reviewed over 60 forex brokers. Below, you’ll find some of the most popular, most powerful trading platforms for scalpers.

MetaTrader: This wildly popular platform suite from MetaQuotes Software offers advanced charting tools and automated trading capabilities for scalpers. Check out my MetaTrader 4 guide or my MetaTrader 5 guide (or compare them side-by-side in my MT4 vs MT5 guide).

cTrader: Known for its advanced charts and VWAP pricing, cTrader can be a suitable choice for scalpers and scalping strategies. Learn more by reading my guide to the best brokers for cTrader.

TradingView: In recent years, TradingView has become immensely popular across asset classes and trading strategies. Perhaps best known for its charts and social features, TradingView also supports automated trading and backtesting using the Pine script language. Check out my guide to the best brokers for TradingView to learn more.

FAQs

What is the best forex scalping strategy?

There isn't a one-size-fits-all “best forex scalping strategy,” as effectiveness can vary based on individual trading styles and market conditions. However, strategies that incorporate multiple indicators for confirmation – like combining moving averages with RSI – tend to be more reliable than plain guesswork.

In my experience, I’ve found that the key is to use a systematic approach over time that can increase your ability to leverage any statistical significance from indicators in combination with your own risk-management based on your goals and style.

I also recommend backtesting a variety of strategies and find one that aligns with your risk tolerance and trading objectives. Perhaps the hardest part is tweaking your risk-reward ratio based on your gain-to-loss ratio, so that you know how often you can afford to be wrong. (A scalper who is “right” more often can afford to risk more for a given profit target.)

Is forex scalping profitable?

Yes, forex scalping can be profitable if executed with discipline, effective risk management, and a well-tested strategy. The high frequency of trades means that small profits can accumulate over time. However, the potential for significant losses exists, especially if leverage is misused or risk management is neglected. It’s crucial to keep the average loss smaller than the average profit, over time, and depending on your gain to loss ratio.

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About the Editorial Team

Steven Hatzakis is the Global Director of Online Broker Research for ForexBrokers.com. Steven previously served as an Editor for Finance Magnates, where he authored over 1,000 published articles about the online finance industry. A forex industry expert and an active fintech and crypto researcher, Steven advises blockchain companies at the board level and holds a Series III license in the U.S. as a Commodity Trading Advisor (CTA).

Joey Shadeck is a Content Strategist and Research Analyst for ForexBrokers.com. He holds dual degrees in Finance and Marketing from Oakland University, and has been an active trader and investor for close to ten years. An industry veteran, Joey obtains and verifies data, conducts research, and analyzes and validates our content.

John Bringans is the Managing Editor at ForexBrokers.com. An experienced media professional, John has a decade of editorial experience with a background that includes key leadership roles at global newsroom outlets. He holds a Bachelor’s Degree in English Literature from San Francisco State University, and conducts research on forex and the financial services industry while assisting in the production of content.