Scalping in Forex: Small Steps to Big Money
Forex scalping is a trading method where the trader opens and closes a trade manually within minutes of each other in order to profit from the small price appreciations that occur when the market moves in his favor. In scalping, timing is everything, for a number of reasons.
A scalping trader has to be able to pick the right moment to get into the market and the right moment to exit. In whatever direction a currency pair is moving, there will be advances, pullbacks and further advance. There will be major movements and minor movements. A currency pair may move 100 pips over several hours, a pullback 70 pips for a few more hours, and then make a further advance of maybe 200 pips over three days. These are major moves but are for medium term traders, not scalping traders.
A currency pair may move 15 pips in a particular direction for one minute, then pull back seven pips over a period of seven minutes, oscillate at this level for another three minutes, and make another strong 20 pip move over the next ten minutes. This is a minor move in Forex, occurring over a matter of minutes, and this is what the scalper is after. The scalper needs to be able to make the right decision and enter the market in the direction of the strong minor moves, then exit just as the pullback starts.
The time frame that the scalper chooses will influence his profitability. Since the scalper is basically in and out of the market in a matter of minutes, the shorter time frames such as the 1-minute, 5-minute and 15-minute time frames should be used for scalp trading. The same rules of technical analysis used on bigger time frames should be applied here, and should be used to take trading decisions.
Now what are the pros and cons of scalping in Forex?
In previous article about pros and cons of each Forex time frame, I have written that each time frame could become the best for you.
Pros of Forex scalping. The main benefit of Forex scalping is that the trader can make more money in a short while if most of trades are successful. A scalper who uses 1 Standard Lot in trading and who aims to make 20 trades a day with profits of 3 pips each time will gross in $600 USD a day in trading, or $12,000 USD a month. That is quite good for a trader, only if he is successful with his scalping strategies. I know a trader from my country that grew $300 USD to $32,000 USD this way. Again, some traders are only comfortable with “a bird in hand.” Closing out profits made in minutes, by using large trade volumes and small pip profit targets makes scalpers more comfortable. There are some traders who cannot stand the nervous wait. Furthermore, if you want to be a successful in scalping, you should know when to trade Forex and when not to trade for better trading results.
How about the cons of Forex scalping? Well, for one, scalping cannot be used by beginners; it is a very risky trading technique. Mistimed entries can lead to positions incurring huge losses; not surprising since scalping as a rule, demands a disregard of risk management for it to maximize profits. Secondly, scalping is subject to plenty of market noise due to the extremely short time frames used. When there is market noise, it becomes harder to make informed trading decisions. Thirdly, many market maker brokers do not allow scalping. Remember the $300-to-$32,000 USD guy I mentioned earlier? Well, his broker seized all that money and closed his account; what a nasty end to a scalping career. Furthermore, do not forget to check your broker before opening the real account. Don’t know how to check your broker? Please read my article regarding Forex broker scam.
Scalping is very sensitive to market noise. You should avoid trading during news releases and unstable market conditions.
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