Forex scalping is a popular method involving the quick
opening and liquidation of positions. The term “quick” is imprecise, but it is
generally meant to define a timeframe of about 3-5 minutes at most, while most
scalpers will maintain their positions for as little as one minute.
The popularity of scalping is born of its perceived safety
as a trading style. Many traders argue that since scalpers maintain their
positions for a brief time period in comparison to regular traders, market
exposure of a scalper is much shorter than that of a trend follower, or even a
day trader, and consequently, the risk of large losses resulting from strong
market moves is smaller. Indeed, it is possible to claim that the typical
scalper cares only about the bid-ask spread, while concepts like trend, or
range are not very significant to him. Although scalpers need ignore these
market phenomena, they are under no obligation to trade them, because they
concern themselves only with the brief periods of volatility created by them.
Is Forex Scalping for you?
Forex scalping is not a suitable strategy for every type of
trader. The returns generated in each position opened by the scalper is usually
small; but great profits are made as gains from each closed small position are
combined. Scalpers do not like to take large risks, which means that they are
willing to forgo great profit opportunities in return for the safety of small,
but frequent gains. Consequently, the scalper needs to be a patient, diligent
individual who is willing to wait as the fruits of his labors translate to
great profits over time. An impulsive, excited character who seeks instant
gratification and aims to “make it big” with each consecutive trade is unlikely
to achieve anything but frustration while using this strategy.
Attention is essential for the forex scalper
Scalping also demands a lot more attention from the trader
in comparison to other styles such as swing-trading, or trend following. A
typical scalper will open and close tens, and in some cases, more than a
hundred positions in an ordinary trading day, and since none of the positions
can be allowed to suffer great losses (so that we can protect the bottom line),
the scalper cannot afford to be careful about some, and negligent about some of
his positions. It may appear to be a formidable task at first sight, but
scalping can be an involving, even fun trading style once the trader is
comfortable with his practices and habits. Still, it is clear that
attentiveness and strong concentration skills are necessary for the successful
forex scalper. One does not need to be born equipped with such talents, but
practice and commitment to achieve them are indispensable if a trader has any
serious intention of becoming a real scalper.
Automated trading systems
Scalping can be demanding, and time-consuming for those who
are not full-time traders. Many of us pursue trading merely as an additional
income source, and would not like to dedicate five six hours every day to the
practice. In order to deal with this problem, automated trading systems have
been developed, and they are being sold with rather incredible claims all over
the web. We do not advise our readers to waste their time trying to make such
strategies work for them; at best you will lose some money while having some
lessons about not trusting anyone’s word so easily. However, if you design your
own automated systems for trading (with some guidance from seasoned experts and
self-education through practice) it may be that you shorten the time which must
be dedicated to trading while still being able to use scalping techniques. And
an automated forex scalping technique does not need to be fully automatic; you
may hand over the routine and systematic tasks such as stop-loss and
take-profit orders to the automated system, while assuming the analytical side
of the task yourself. This approach, to be sure, is not for everyone, but it is
certainly a worthy option.
Some words on trade sizes and forex scalping
Finally, scalpers should always keep the importance of
consistency in trade sizes while using their favored method. Using erratic
trade sizes while scalping is the safest way to ensure that you will have a
wiped-out forex account in no time, unless you stop practicing
scalping before the inevitable end. Scalping is based on the principle that
profitable trades will cover the losses of failing ones in due time, but if you
pick position sizes randomly, the rules of probability dictate that sooner or
later an oversized, leveraged loss will crash all the hard work of a whole day,
if not longer. Thus, the scalper must make sure that he pursues a predefined
strategy with attention, patience and consistent trade sizes. This is just the
beginning, of course, but without a good beginning we would diminish our odds
of success, or at least reduce our profit potential.
Now let’s take a look at the contents of this article where
forex scalping is discussed with all its details, advantages and disadvantages.
Our suggestion is that you peruse all of this article and absorb all the
information that can benefit you. But if you think that you’re already familiar
with some of the material, to shorten your route, we present the table of
contents of this article.
Contents
1. How scalpers make money: Here we will take a
look at the logic behind scalping, and we’ll discuss the best conditions and
necessary adjustments which must be made by a scalper for profitable trading.
2. Choosing the right broker for scalping: Not
every broker is accommodative to scalping. Sometimes this is the stated policy
of the firm, at other times the broker creates the conditions which make
successful scalping impossible. It is important that the novice scalper know
what to look for in the broker before opening his account, and here we’ll try
to enlighten you on these important points.
3. Best currencies for Scalping: There are
currency pairs where scalping is easy and lucrative, and there are others where
we advise strongly against the use of this strategy. In this part we’ll discuss
this important subject in detail and give you usable hints for your trades.
4. Best times for Scalping: There is an ongoing
debate about the best times for successful scalping in the forex market.
We’ll present the various opinions, and then offer our own conclusion.
5. Strategies in Scalping: Strategies in scalping
need not differ substantially from other short-term methods. On the other hand,
there are particular price patterns and configurations where scalping is more
profitable. We’ll examine and study them in depth in this section.
a. Range Scalping: Some traders consider
ranging markets better suited for scalping strategies. Here we’ll examine why,
and how to scalp under such conditions.
b. Breakout Scalping: We’ll examine news
breakouts, and technical breakouts separately and discuss suitable scalping
strategies for both.
c. Trend Scalping: Here we’ll take a general
look at forex scalping in trending markets.
6. Trend Following while Scalping: Trends are
volatile, and many scalpers choose to trade them like a trend follower, while
minimizing the trade lifetime in order to control market risk. In this part
we’ll examine the usage of Fibonacci extension levels for scalping trends.
7. Disadvantages and Criticism of Scalping: Scalping
is not for everyone, and even seasoned scalpers and those committed to the
style would do well to keep in mind some of the dangers and disadvantages
involved in using the style blindly.
8. Conclusions on Scalping: In this final section
we’ll combine the lessons and discussions of the previous chapters, and reach
at conclusions about who should use the forex scalping trading style, and the
best conditions under which it can be utilized.http://www.forextraders.com
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