So, you think you want to try scalping! Just because it seems like an easy way to score a small profit within a minute, this is not always true. Although it is very fast-paced, it can be rewarding as long as you can make the correct decisions within split seconds, and of course as long as your broker doesn’t try to make you lose through increasing the spread, re-quoting and… . It is much like a fast motion video game and though it may seem like fun, it isn’t always. Still, scalping is a trading skill you may want to learn, or at least know how it works, and can build your confidence when engaging in alternate forms of trading such as day or swing trading.
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What Is Scalping?
So what is scalping, in case of forex, forex scalping? Scalping is a method of trading where a trader “skims” small profits continuously. It is the act of entering and exiting positions several times in one day while trying to make profits during high velocity moves, a scalper will act quickly on releases of economic data and other significant news events that influence trading activity.
Although similar, scalping is not the same as day trading. While day trading, a trader will open a position once or twice within one day, but close it before the day is through. He will never leave the position open overnight or carry it into another session. A day trader opens and closes positions once or maybe a few times a day based on information they obtain from five minute, fifteen minute or 30 minute charts. A scalper is even more feverish as he aims to skim tiny profits multiple times through going in and out of positions numerous times within a single day. This trader makes trades according to data from tick charts or one minute charts.
As day traders chase after few profits involving dollars and cents per share or unit, scalpers aim to make numerous gains on trades involving between five and ten pips (fractions of pennies). They act fast and furiously when conducting transactions. When trading on standard lots, these petty gains add up. The average made on one pip for trading one lot is $10 and if five pips are involved, $50 can be made on a single trade. If this trade is successfully made ten times within a trading period, the trader can profit by $500. Of course, if everything goes properly and without any problem. Sometimes just one single position takes the profit made through several winning positions down the drain.
Should You Consider Forex Scalping?
What about you? Should you consider scalping? Scalping is very fast paced and requires great persistence and concentration. You must focus steadily on economic activity and react on it quickly. Also, you must be comfortable sitting at a single computer screen for hours on end. You need to be able to make decisions on the spur of the moment and thus, be on your toes at all times. If your attention strays for even a second, you can easily miss out on profits. Hence, it is not advisable to attempt forex scalping.
Redundancy is yet another aspect of forex scalping. By carrying out the same actions over and over, you can minimize your chances of facing catastrophe. Likewise, you need the skill to jump into and out of positions using more than one method. Fast and reliable Internet access must be a high priority for you as well as knowing how to react if your system goes down. You need to be able to contact a dealing desk via phone and identify yourself quickly.
Keeping good records must be a high priority to you as well. Once you maintain a hard copy of your past training activities, you can review them periodically. This will help you improve your trading skills as you learn from your past mistakes. Simply take screenshots of your trades and make a printed copy of each to put in a journal.
Do you really have to handle all these stress and hassles that forex scalping has?
Novice traders like to try forex scalping or day trading, because they like to make some money everyday and close the computer. They don’t like to leave any positions open for several hours, days, or weeks. They hate setting any stop loss and lose money because of it. They are afraid to see they have lost money the next day they turn on their computers. Maybe these are all good reasons, but the problem is scalping or even day trading is not the solution, and if your goal is making some money through forex trading, you can not do it consistently if you do scalping or even day trading. Making some money here and there doesn’t make you a profitable trader in long term. You have to choose a way the makes money for you consistently. I will tell you how.
Why Is Scalping So Popular?
What are the best ways of scalping? And why has scalping become so popular? First of all, there is no one popular method, but this act has become so extremely main stream with traders (as much as 95%) and is overwhelming the Forex market. Over the years, myths about price movements in Forex trading have developed, all which have no factual proof.
A first myth is that Forex prices move according to some form of scientific formula making these movements easy to predict. This is nonsense since the Forex market is made up of humans and because humans are unpredictable, so are these markets. Forex prices move with great uncertainty on the short time frames like 1min and 5min, and thus after so many trades, you are trading on random volatility or maybe even “market noise.” To win, you need to get the odds on your side, but that is not always so easily done.
A second myth is that because of the scientific accuracy concept, you can win the majority of your trades (as much as 90%). However, past successful scalpers are likely to say they won less than half of their trades rather than almost all of them. Even those that have said to scored up to 90% trade wins have no basis to prove why they have done so.
A third myth is that you can trade with an incredibly tight stop loss or on as little as five pips. That is merely based on random volatility and there is no evidence that such a trading practice will work in the real world. A five pips stop loss can easily get hit by a small price or spread fluctuation.
No matter what anyone says, playing on the Forex market is not a way to make easy money. Also remember, brokers like scalpers since they conduct numerous transactions and thus, it means more money in commissions for them. Hence, the forex scalping strategies and market are extremely dangerous, especially for those who enter it with pure emotional impulse.
When Can Forex Scalpers Trade?
Since scalpers are doing high-speed trading, high liquidity is extremely important. This enables them to execute trades within seconds. They have to stick with trading major currencies since they are most liquid and only when trading activity is high, such as the hours when trading sessions overlap.
Since scalping requires alertness and fast-paced action, they have to not to attempt it if they do not feel up to it for whatever reason. If they feel tired or stressed out or are consumed with an emotional issue in their lives, they will have to avoid scalping altogether – of course if greed allows them to cease trading for one day. Having a cold or the flu or perhaps any type of illness will not only hamper the scalpers ability to make quick and effective decisions, but may require frequent trips away from their terminal. Also, if they feel they are on a losing streak and need time to rest, they have to stop trading. They can trade only when they feel well rested and energized and prepared for action.
Even if we believe that some people make money through scalping, but scalping is not for everyone, and most probably you are among those who can not make any money through scalping. It is mainly for traders who are highly focused on their activities and can make effective decisions without thinking things through (although I have never seen any of these traders make money consistently through scalping). Also, one must be OK working at a computer for as long as an entire trading session and not become easily fatigued. Unlike what most people think, scalping needs a lot more experience and knowledge compared to the other trading styles.
Don’t believe positive things you hear about scalping from people you know. There is no one established formula that will guarantee you success at scalping at least 90% of the time. Likewise, if something sounds too good to be true, it most likely is, especially in the forex scalping atmosphere.
There is a much easier way to make money through forex trading (or any kind of trading). To make money through forex trading, you don’t have to do scalping or day trading. You don’t have to sit at the computer several hours per day, and you don’t have to push yourself to handle a lot of pressure and stress. If you want to trade forex to make money, then you have to forget about dealing with short time frames. They can not show you the right way. Working with the long time frames not only is more profitable, but it is easier and safer. This is what we have been doing for the past several years and we are so happy with it.