The Forex market is volatile and unpredictable. On the one hand, the price forms patterns and we can identify familiar figures on charts. On the other, the conditions are always different. A professional trader should always learn new tricks to be able to adjust to market changes. Many traders have 2-3 trading methods up their sleeve and use them depending on the situation. For example, you can open, a trade for the medium-term and simultaneously engage in scalping. Today, we will talk about scalping as one of the trading methods.
What is scalping?
Scalping is characterized by profiting from trades that last for just a few minutes. That is, the trader makes short-term and low-profit entries to the market.
This trading strategy uses short stops and is popular among traders because even if the trade goes into negative territory, the losses won’t be too big. Plus, thanks to a large number of market entries, you can easily cover these losses. If everything is done correctly, you will be able to generate a steady profit here.
A scalper is a trader who prefers to skim small profits off of a high number of daily trades, held for a few minutes only. The price movement here is also very small, just a few pips. To recap, a pip is the smallest price move in a quote of a particular instrument.
Scalping: pros and cons
The main advantage of this strategy is that the trader does not need to prepare for trading in any special way. In this case, it doesn’t really matter whether a trader can perform fundamental or technical analysis. Nevertheless, it is worth considering the general technical issues and the general market mood. You shouldn’t trade against the trend, so if the news comes out negative, hold off purchases and vice versa.
Another advantage of scalping is that it can be useful and effective for market research. A trader who uses scalping starts to better understand the pattern and behavior of a particular asset. This can help him greatly in the future on his way from simple trading tricks to a more professional and smart trading approach.
This strategy has its disadvantages:
- it’s very time consuming and requires a lot of time and attention to details;
- it’s emotionally tiring, a trader may have psychological breakdowns;
- the maximum leverage is used, so incorrect forecasting can lead to significant drawdowns or loss of the deposit.
If you decide to try your hand at Forex and use the scalping strategy in your trading, we recommend that you pay attention to the following points:
- always use protective Stop orders. Yes, it makes it more difficult to trade, and you need to spend valuable seconds to set the levels, but it’s more important to keep your deposit safe;
- do not trade during important news releases. During these times, the market is very difficult to predict.
- plan the duration of the trade beforehand and, when the time is up, immediately close the position.
- perhaps the most important. Follow the rules of this strategy strictly. If during medium-term trading it is still possible to deviate from the rules, with scalping this is unacceptable.
Scalping is not suitable for everyone. It’s very stressful, although it can generate good profits too. In just a couple of hours of scalping, you can earn as much as an intraday trader would earn in a few days.