17 July 2020
The Forex scalping trading style typically involves trades with a 1 to the 15-minute timeframe. However, there are many traders who might prefer to close their positions in around 60 seconds, instead of waiting for one-quarter of an hour or more.
We will discuss 5 essential, yet very simple strategies that such market participants can employ. Firstly, before even beginning the trading process, it is essential to find brokers with no commissions per trade and with competitive spreads. Since we are talking about such a short timeframe, it is essential to save as much money on those expenses as possible.
Many experienced traders who are using scalping strategy do prefer to open and close positions manually because in this style every second can be very valuable. Since there is no guarantee that they will always achieve a high ratio of winning trades, most of them set their profit targets 2 or 3 times higher than risk amounts. This approach helps traders to increase their chances of earning decent payouts.
As for the technical indicators, using a 50-day exponential moving average in conjunction with 100-day EMA is a very popular tactic to use with a 1-minute Forex trading strategy. In addition, some traders also use stochastic oscillators to identify good entry points.
Finally, for the purpose of detecting short term trends and potential reversals, some professionals make use of Heiken Ashi charts, since this gives them the opportunity to identify those signals in a relatively short space of time, without having to resort to complex candlestick pattern analysis.
One Minute Forex Strategies listed
Here is a short list of techniques a trader can use for his or her Forex 1-minute trade strategy:
- Choosing brokers with tight spreads and no commissions
- Executing trades manually
- Setting profit target 2 or 3 times higher than the risked amount
- Using 50 and 100-period exponential moving averages
- Using Heiken Ashi candlesticks
Let us go through each of those methods in more detail.
Choosing the right broker
Before moving on to the exact methods, it is important to mention that before traders start using one-minute strategies for Forex, it might be useful to consider broker expenses. Firstly, it is important to avoid high commissions. Some providers do charge a $5 or $10 fee for trading 1 lot, which is the equivalent of 100,000 units of a given currency.
The successful Forex strategy on the 1-minute timeframe relies on dozens of trades per day. Therefore, those types of expenses can easily add up to an extent where a trader could be spending $100 to $500 just in commissions, which can significantly reduce his or her potential payouts. Fortunately, there are plenty of brokers who do not charge commissions for trading.
Another major consideration here is the size of the spreads. For such a short timeframe as 1 minute, a trader might be only aiming at 5 or 10 pip gain, therefore brokers having tight spreads is essential for success in this style of trading.
Here it might also be helpful to point out that most liquid major currency pairs typically have better spreads, than their less famous counterparts. Consequently, market participants, using one-minute strategies for FX, traders might consider executing most of their trades with the most popular pairs.
Avoiding the use of stop-loss and take-profit orders
In scalping, every second is important, especially when it comes to trading with a 1-minute timeframe. Consequently, the majority of professional traders usually prefer to execute both buy and sell orders manually, instead of wasting some precious seconds on preparing stop-loss or take profit orders.
The only exception to this rule is the time during the major economic announcements. Some traders might choose to avoid trading at those points altogether. However, those who open positions during important news releases do place stop-loss orders, as an insurance policy against potential losses. In highly volatile market conditions such as news announcements, stop loss placement should be a part of your 1 minute Forex strategy.
Setting the appropriate profit and loss ratio
Many Forex traders believe that achieving more than 50% of winning trades is highly important for building a successful trading career. However, there can be no guarantee that an individual can always achieve this, especially when it comes to such a high stressed environment, such as 1-minute trading. Trading setup dictates risk to reward ratio. You can simply make a decision whether to open a position or not.
However, there is one simple way to improve the odds of success. For example, a trader can aim for a 10 pip gain for each position and at the same time limit losses to 5 pips. Clearly it does not always have to be 2:1 ratio. For example, a market participant can have a goal of winning 9 pips from every trade and put close positions at 3 pip loss.
This approach enables traders to earn decent payouts even in cases where the winning rate of their trades is only 45% or 40%. Your 1 minute chart trading strategy should give you a trading edge in order to increase your trading balance gradually.
Utilizing exponential moving averages
Choosing the best indicators for 1 minute chart is not easy. Certain indicators work best in certain market conditions. One of the best indicator for 1 minute scalping is EMA, as the indicator puts an emphasis on recent price changes. Markets can be trending or ranging. One of the most popular 1-minute strategies is the use of the traditional candlestick charts in conjunction with 3 technical indicators. The first two of them are the 50-day exponential moving average (EMA) and 100-day EMA. This is meant to help a trader with trend identification.
If the current price is higher than exponential moving averages, that could suggest that the given currency pair is in an uptrend. If the 50-day EMA crosses and moves above 100-day EMA, this can be another important bullish sign. The opposite is also true if a 50-day exponential moving average crosses and goes below its 100-day counterpart, this is usually considered as a bearish signal.
The third final component of this analysis is the stochastic oscillator, that produces reliable trading signals in ranging markets. This indicator is measured as a number, which can range anywhere from 0 to 100. Simply put, if this measure is 80 or higher, this might suggest that the recent move upwards was too strong and the market is likely to experience some pullbacks and corrections. At the same time if the stochastic oscillator is 20 or lower, then this might be a sign that a recent downward move had too much strength and the given currency pair might recover in the short term.
In order to see how those indicators can work together, let us take a look at this
1-minute EUR/JPY chart:
As we can see from the above, the Euro was rising against the Japanese yen, however, at the same time, the stochastic oscillator was well above 80, which pointed at the fact that the correction was likely. Sure enough, the single currency fell significantly, with the 50-day EMA crossing below the 100-day exponential moving average, which was another bearish sign.
This downtrend continued for some time until the Euro was able to turn the tide and once more return close to the previous high levels. Here again, the stochastic oscillator reached extremely high levels, which was followed by pullbacks.
As we can see from this chart, this time the Euro is rising once more, trading well above the 50-day and 100-day exponential moving averages. There is one concern, however, the stochastic oscillator now is nearly at 100, which suggests that this recent upswing was too strong and we might expect some pullbacks.
Therefore, from this example, we can see that those 3 indicators used together can help traders not only to identify the latest trends, but also to predict the possible reversals as well. However, just like any other Forex strategy, using this method can not guarantee a 100% success rate, there can be other factors in play, which can substantially alter otherwise predictable patterns.
EMAs are trend trading indicators while oscilators help trade ranges. Using these in combination might help short term traders increase their chances by trading in the trend direction.Choosing the best EMA for 1 minute chart can be a challenge, however, you can experiment and see what works for you best.
Using Heiken Ashi candlesticks for quick technical analysis
Another simple, yet potentially effective 1-minute strategy could evolve around the Heiken Ashi charts. This might be very beneficial for those traders who are not comfortable with analyzing several different indicators in such a short period of time. Powerful 1 min scalping system can include Heiken Ashi, as it filters out market noice and makes trend trading easier.
On the other hand, the Japanese candlesticks speak for themselves in terms of showing the latest trends and even potential reversals. In order to illustrate this let us take a look at this 1-minute GBP/JPY chart:
As we can see from this chart, the GBP/JPY pair moved sideways for a while, until moving on to quite a lengthy downtrend in the middle. This large move was sometimes interrupted by very short green candlesticks, however, the overall direction of the market remained intact.
It was only at the end of the chart, where we can see several longer green candles, which signaled a reversal and the pair regained roughly two-third of its position.
As we can see, there were some individual points in this chart, where it was a bit tricky to correctly guess the trend, however, most of the time it was quite obvious. This is not as much of an issue since trades do not need to have 100% winning trades in order to succeed. In most cases having more than 50% is quite enough.
Despite those arguments and all of the advantages of using Heiken Ashi candlesticks, there can be some scenarios where traders might get confused with mixed signals. To see one example of this, let us take a look at this
1-minute EUR/USD chart:
Here just like in the previous chart, we can see that most of the time trends are well defined, basically, during this period the Euro had experienced 2 uptrends and 1 downtrend.
However, there are points, where traders could potentially run into problems. Just to bring one example, the first upward trend was interrupted by 5 red candlesticks in a row. In fact, the 3rd and 4th candle seems quite solid, so some traders might have concluded that this was a sign of reversal, however, later the old trend resumed.
So, therefore, we might conclude that the Heiken Ashi charts can certainly help traders to improve the ratio of winning trades, but it can not always be a guarantee of success. Heiken Ashi simply makes price moves more visible with less market noise. Best 1 minute strategy for Forex should include rules for following local and general trends in order to increase success probability.
Forex One Minute Strategy - Key Takeaways
- Due to the frequency of trades with a one-minute Forex trading strategy, it is vital for traders to find a broker who does not charge commissions and has rather competitive spreads. If that is not the case, then those types of expenses can consume a significant portion of their potential payouts.
- In order to improve their chances of success with Forex one minute trade strategy traders might consider setting their profit targets 2 or 3 times higher than the limit on their losses.
- In the case of a one-minute Forex trading strategy, traders might not have much time for complex candlestick pattern analysis. Therefore, using Heiken Ashi charts might be a worthy alternative, since it can help them to get some idea about the latest market movements and trends in a short period of time.
FAQ: Forex Strategy on One Minute Timeframe
What are common mistakes traders make, who are using a 1-minute Forex trading strategy?
One of the most common mistakes with such time frames might be emotional trading. At some point, every trader gets his or her predictions wrong and it is essential to limit losses to some predetermined number of pips. If a market participant ignores this, the potential losses can easily get out of control. Eventually, it might happen that one such losing trade can offset several winning trades, which can be very frustrating and demoralizing as well.
Another common error with this type of trading is a failure to factor in the size of the spreads. There are several minor currency pairs, which are quite volatile and interesting to trade, however, they also have larger spreads and over time this might take a toll on trader’s potential payouts.
How does an FX 1-minute strategy differ from the 15-minute scalping strategy?
Those two methods are quite similar and do fall into the scalping strategy category. The only differences are that 1 minute scalping strategy might be even more stressful for some traders and does require a very quick decision making and execution of the trades.
Another thing to point out here is that traders might consider setting less ambitious profit targets with a 1 minute trading strategy timeframe, compared to a 15-minute option, since currency might be less volatile in such a small space of time.
What are the benefits and drawbacks of using one-minute strategies to trade Forex?
One of the advantages of a 1 minute strategy is that the frequent circulation of trading capital can provide a potential to earn higher returns. Also, traders using this style do avoid overnight rollover charges, which sometimes can add up to a considerable amount.
Finally, as we have discussed, many scalping strategies do not involve complex analysis and can be implemented even by those trades with relatively small experience.
Clearly, the one minute chart trading strategies have its disadvantages. Firstly, for many traders, scalping can be very stressful and exhaustive, since executing such trades needs constant attention.
Another problem is that frequent trades very often leads to high expenditure on spreads. Also, this style of trading requires a good, constant connection to the internet and decent hardware performance, if a trader has a problem with at least one of those, he or she can run into serious losses.
How does the exponential moving average differ from a simple moving average indicator?
First off, both SMA and EMA are some of the best indicators for 1 minute chart. The Simple Moving Average (SMA) tracks the average closing price of the last number of periods. For example 50 day SMA will indicate the average closing price of 50 trading days, where all of them are given equal weight in the indicator.
The Exponential Moving Average (EMA) is a similar measure, however it does differ from the SMA in a sense, in that it gives greater weight to more recent prices, so it is generally quicker to react to the latest changes in the marketplace.
Can there be an effective 1-minute Forex news trading strategy?
In theory, traders can succeed during any environment. However, the reason why many of them avoid trading major announcements is that it is notoriously difficult to correctly guess the direction of the currency pair.
Even if the latest Gross Domestic Product (GDP), Consumer Price Index (CPI), or interest rate decision matches or exceeds the market expectations it does not always mean that as a response the currency in question will appreciate.
This can be explained by the fact that this particular outcome was already priced in and therefore after the announcement, it can stagnate or even decline to some extent. This is where the famous saying in Forex comes from: ‘Buy the rumor, sell the fact’.
Another major problem is the threat of serious losses. After such major announcements, the currency pairs might move more than 100 or 150 pips in less than a minute. Therefore under those conditions, traders might not have the ability to limit their losses to just 3 or 5 pips. The only potential upside here is that if a trader guesses the move correctly, then potential gains can be as large as described above. However, this is much closer to a 50/50 guessing game, rather than a viable trading strategy.
What is the best moving average for 1 minute chart?
The best moving average for 1 minute chart is Exponential Moving Average indicator as the EMA responds quickly to recent price changes while other Moving Average indicators fail to do so. Moving averages help short term traders to trade in general trend direction.
What is the best indicator for 1 minute chart for scalpers?
The best indicator depends on the trading conditions. Markets go from trends to ranges to trends again. In trends, trend following indicators such as EMAs are the best for scalpers. In ranges, range trading oscillators are the best, as they indicate overboght and oversold conditions.
