Scalping as a trading strategy is increasingly being used by prop traders because of its ability to generate consistent profits. But it's not as easy to follow this trading strategy as it seems at first glance.
Successful scalpers must have consistency, discipline, and precise timing, as well as a strong understanding of both market fundamentals and the strict rules that most prop trading firms use to regulate scalping.
In this article, we will look at seven proven trading scalping strategies for prop firms, covering important information such as prop firm-specific scalping rules, understanding risk management for scalpers, and session-based scalping opportunities.
What is Scalping?
Scalping in futures and forex markets refers to a strategy where traders make profits by capturing very small changes in asset prices within durations that might last for just a few seconds or a few minutes at best.
These small changes in prices are often referred to as "pips." In forex trading, a pip is a change of just 0.0001 between currency prices for most pairs (except for the Japanese Yen, where 1 pip equals a change of 0.01).
Prop traders rely on charts, patterns, and technical indicators to identify these extremely short-term trade opportunities. A scalper can do these trades multiple times a day to capture several smaller profits, without holding overnight positions, which often carry significant risk.
For example, a typical scalper might perform anywhere between 10 and more than 100 trades per day, with each trade targeting a profit of just 5 to 15 pips, with a stop loss of 2 to 5 pips. Trade durations are usually just a matter of a few seconds or, at a maximum, a few minutes per trade.
However, there are certain disadvantages of scalping as well. Most prop firms have strict daily loss limits, such as a maximum of 3-5% loss per day. This means that scalping needs to be carried out with extreme precision because several minor losses during the day might end up crossing the daily loss limit and causing the trader to lose their funded account.
Moreover, most prop trading firms also have rules regarding minimum trade durations, making scalping difficult. But despite the challenges, scalping is indeed a very popular strategy in the prop trader community.
7 Proven Trading Scalping Strategies for Prop Firms
Method 1: 1-Minute Average Scalping with Moving Averages
One of the easiest and most popular scalping strategies is 1-minute average scalping. This is extremely popular among traders who are just starting out in scalping.
The idea here is to execute all the trades within a 1-minute timeframe. This timeframe is considered well-suited to capturing the very small fluctuations in prices that happen during the day.
This trading strategy involves minimal capital risk with excellent risk-to-reward ratios, as long as it is executed properly.
For 1-minute scalping, it is important to keep your eye on the transaction costs because anywhere between 2-7% of gross profit might go towards such fees and commissions. Scalpers executing this strategy should choose a prop firm whose spread costs are competitive.
Method 2: Order Flow Scalping in Highly Liquid Markets
Unlike 1-minute scalping, order flow scalping is a more advanced trading technique that uses real-time market data to find imbalances between buyers and sellers during momentum bursts. It is particularly suited for prop traders who trade in futures and other highly liquid markets.
In this strategy, traders monitor market depth and Time & Sales data to uncover the placement of large market orders, especially by institutional investors. This way, they are able to identify possible fluctuations in pricing before it gets reflected in actual price charts.
Order flow scalping is quite advanced, and many prop firms are not geared up to provide the infrastructure needed to execute it.
Traders looking to follow this method need to ensure that their prop firm platforms are capable of providing Market by Order (MBO) data rather than just Market by Price (MBP).
Method 3: News Scalping Strategy During Market Volatility
Major economic events like the Fed's announcement of a rate increase or decrease, declaration of non-farm payrolls, release of GDP data, or news related to tariffs on certain products or countries tend to create ripple effects in the markets and cause market volatility.
News scalping is a trading strategy designed to use this volatility to generate profits. When done well, news scalping is one of the most profitable strategies among the ones we are discussing in this article, but it's also one of the riskiest.
In fact, some prop firms restrict news scalping completely, and others place severe restrictions on the timing of trades around such news events.
To execute news scalping, the trader needs to identify the news event in question, figure out what the consensus estimates are for the variable(s) in question, and ascertain what direction the market is likely to breakout on the strength of technical analysis. A well-defined trading plan should outline these steps clearly.
Then all that's left is to set up pending orders around the current price levels (both above and below) and let the market do the rest.
Method 4: Session-Based Scalping Opportunities
Different trading sessions—Asian, London, and New York—each have unique volatility patterns and currency pair behaviors. Session-based scalping aims to use these behaviors in order to make profits.
For example, the Asian session (11:00 PM to 8:00 AM GMT) typically has lower volatility, predictable patterns, and sees range-bound price movements.
The London Session (8:00 AM to 5:00 PM GMT), on the other hand, has extremely high volatility and therefore is best suited for momentum-based scalping.
The New York session (1:00-10:00 PM GMT) has higher liquidity and volatility, especially when the London and New York sessions are overlapping (1:00-5:00 PM GMT / 8:00 AM-12:00 PM EST). This makes it ideally suited for forex scalping in highly liquid markets.
Apart from this, the transition periods when institutional traders from one market hand off their positions to another market also create opportunities for scalpers.
It's also crucial to consider the impact of commissions and fees in such high-frequency scalping strategies. Typically, scalpers who make 50 or more trades during peak session hours will end up paying about 2-5% of gross profits. It's important to choose prop firms with raw spread accounts (0.0-0.2 pip spreads + fixed commission) rather than those that offer standard spread accounts.
Method 5: High-Frequency Trading (HFT) Scalping
In true institutional HFT, trades actually get executed at the speed of milliseconds. In scalping, while it's not as fast, high-frequency trading still means positions that are held for very little time, often less than even a minute.
Due to the specific requirements of this strategy, very few prop firms are able to provide the infrastructure necessary to execute it. It is an advanced strategy better suited for professional traders who have a fair bit of experience with various trading styles.
Typically, HFT scalping involves more than 50 trades a day, with the process usually being nearly semi-automatic, and trades based on micro movements in price, as small as even 2-5 pips.
It's important to note that due to the high-risk nature of this strategy, most prop firms put severe restrictions on executing it. For example, Tick Scalping, or the practice of trading on price changes on a less than 1-second basis, is typically restricted. So is the practice of using delays in price feeds, also known as Latency Arbitrage.
Method 6: Breakout Scalping During Market Volatility Spikes
Breakouts are moments when the market breaks away from a consolidation phase or a key technical level and achieves explosive growth. Breakout scalping attempts to identify these price movements and profit from them during periods of market volatility.
Breakout Scalping can be considerably more profitable than range-based scalping, but the ability to predict the exact timing and to execute quickly is very important to this method.
High probability Breakouts can be judged based on either technical setups or confirmation signals. For example, consolidation patterns such as triangles, flags, or pennants forming on 5-15 minute charts could be a potential breakout. Similarly, Bollinger bands contracting to very narrow widths are another indicator.
Traders monitor confirmation signals such as strong directional candlesticks or sudden volume spikes of more than 150% in a 20-period average to judge a breakout.
Breakout scalping is typically well appreciated by most prop firms, since it encourages trades that last for 15-20 minutes, unlike 1-minute scalping or HFT. It also incorporates clear placement of stop losses to manage risk and offers a high win rate if the execution is done correctly.
Method 7: Momentum Scalping with Volume Analysis
At times when the trending market conditions are stable, a combination of price action analysis and volume indicators can be used as an excellent strategy to figure out directional movements with a high probability of success and use it to generate profits.
This method is known as Momentum Scalping.
In forex markets, volume can be a tricky thing to figure out because the data is not readily available. Traders use various proxies to ascertain the true volume, such as the futures contracts traded volume, price change volume (or tick volume).
They study the distribution of volumes across various price levels to judge trends. Some of the key indicators to do this are Volume Weighted Average Price (VWAP), On-Balance Volume (OBV), and Volume Moving Average.
How to Manage Spread Costs and Commission Impact?
As we've mentioned earlier, spread costs and commission can often make the difference between a successful scalping strategy and an unsuccessful one.
Scalping often involves dozens of trades a day, so understanding and managing these costs is absolutely pivotal. In this section, let's understand these.
Understanding Spread Costs
The difference between the bid (selling) price and ask (buying) price is called the Spread. It's the cost incurred every time a trade is entered and exited.
For example, if the bid price on a EUR/USD pair is 1.1050 and the ask price is 1.1052, then the spread is calculated as 1.1052 - 1.1050 = 0.0002, which is equal to 2 pips.
For a single round-turn trade of 1 lot of EUR/USD (100,000 pairs), a spread of 2 pips is worth $20 (100,000 * 0.0002).
If a scalper is targeting a profit of 5-10 pips per trade, and has a 60% success rate, a spread of 2 pips essentially means they will have to generate 3-4 pips of favorable movement just to break even.
Spreads Across Types of Accounts
Spreads depend on the type of account you have with the firm. In general, spreads are between 0 and 2 pips, with commissions between $0 and $2.50 per lot. However, this can vary significantly.
Firms that offer a raw spread + commission model can be anywhere between 30-50% cheaper than those that offer standard accounts.
Live P&L Examples From Funded Accounts
Let's see how funded accounts get impacted due to spreads through some real-world scenarios.
Assume a trader employs a strategy of 50 trades per day, making an average 6-pip profit on winners but a 5-pip average loss on losers. Assume that they have a 60% win rate. Here are some basic calculations.
Wins per day = 60% of 50 = 30, Losses = 20
Gross profit per day =180 (30 X 6 pips) - 100 (20 X 5 pips) = 80 pips
Here is the calculation of profitability for a Standard Spread account vs a Raw Spread+ Commission-based account.
With a Standard Spread Account, the spread is typically 1.5 pips with no commission per trade. For 50 trades, the total spread cost would be 75 pips (50 × 1.5), with zero commission cost. This brings the total cost to 75 pips, leaving a profit of just 5 pips (80 - 75).
In contrast, with a Raw Spread + Commission model, the spread is only 0.2 pips, but there's a $3 commission per trade ($6 round-turn). For 50 trades, the total spread cost would be just 10 pips (50 × 0.2), while the commission cost equals 30 pips ($150 ÷ $10/pip). The total cost is 40 pips, resulting in a profit of 40 pips (80 - 40).
This example showcases how Standard Spread accounts are better suited for strategies involving fewer than 10 trades per day or that have longer trading hours, but are unsuitable for Scalping.
It's important for traders to understand the spread + commission structure offered by the prop firm. Some firms may add an additional 0.2-0.5 pip markup to broker spreads, so it is always a good idea to compare live spreads of various firms across the same timeframe to get an actual picture.
Commission Structure Variations
Commission structures can also vary a lot between firms. Here are three common types.
Per-Lot Commission is the most straightforward approach, charging a fixed fee per standard lot traded (typically $6-10). This structure is predictable and easy to calculate, making it the most common model for forex prop firms.
Tiered Commission structures offer lower rates as monthly volume increases. For example, a firm might charge $7/lot for 0-100 lots, $6/lot for 100-500 lots, and $5/lot for 500+ lots. This model benefits high-volume scalpers who can reach higher trading tiers.
Percentage-based commissions calculate fees as a percentage of trade value. This model is rare in forex but more common in equities trading. While simple in concept, it can become expensive on large positions.
Risk Per Trade Management Calculator for Scalpers
Risk management strategies for scalping typically revolve around sizing positions based on a percentage risk per trade and the distance to a tight stop-loss.
Here's a simple formula that can be used by Scalpers to calculate their risk.
Position Size in Lots = (Account Size × Risk %) / (Pip Risk × Pip Value)
Here is what the various terms in the formula mean:
Position Size refers to how many lots you should hold. Account Size is how much capital you are trading with. Risk % represents the percentage of capital you are okay to lose on a single trade. Pip Value is the price of a pip for the lot size chosen. Finally, Pip Risk is calculated as the entry price minus the stop loss price in pips.
Here is a live P&L example from funded accounts to understand how this risk management calculator operates.
Let's assume the trader's Account Size is $50,000 on a EUR/USD trade, with a maximum Risk Expectation of 1%.
If the entry price is 1.1075 and the stop loss price is 25 pips below entry (ie, 1.1050),
Position Size in Lots = (50,000 × 1 %) / (25 × $10 per pip) = 2 Lots
This means that to stay within your risk tolerance, you should trade fewer than 2 lots.
Scalping and Swing Trading Strategies
Scalping is a viable and profitable strategy, but it's important to do it correctly with a complete understanding of risk management rules, spreads, commissions, and prop firm trading rules. While scalping focuses on short-term profits, swing trading represents an alternative approach among various trading styles, where traders hold positions for days or weeks to capture larger price movements.
We've discussed the seven major scalping strategies, but all of them may not be suited to every prop trader. Swing trading offers a different risk profile compared to scalping and may appeal to traders who prefer less screen time and fewer transaction costs. Each trader must develop a trading plan that aligns with their personality, risk tolerance, and lifestyle.
Understanding your risk-taking ability, your trading style, and the infrastructure available with your prop firm to enable your chosen strategy is key to choosing the right way to go about scalping or swing trading. Both trading techniques can generate consistent profits when executed with discipline and proper risk management rules.
A comprehensive trading plan should account for market volatility, specify risk per trade limits, define entry and exit rules, and include contingency plans for losing trades. Without these risk management rules, even the most sophisticated trading strategy can result in account drawdowns due to poor risk management.
For scalpers working in highly liquid markets, the combination of tight spreads, minimal slippage, and access to technical indicators creates an environment conducive to consistent profits. Similarly, swing trading benefits from these conditions while offering more flexibility in execution timing.
Both scalping and swing trading require traders to adapt to market volatility, use appropriate technical indicators, and maintain discipline. By following established risk management rules and avoiding common pitfalls like poor risk management and revenge trading, prop traders can build sustainable careers regardless of which trading techniques they employ in their trading plan.
