Forex Scalping - A guide to scalping forex
If you’re already interested in forex trading, then you may have come across the term ‘scalping’.
It is similar to day trading in the sense that you are looking to make short-term profits throughout a trading session, but it takes place in a much faster and smaller environment.
What is Forex scaling? Forex scalping is perhaps the riskiest trading strategy you can take up. Many avoid it and prefer to trade long-term.
Some believe that due to the fast-paced nature of it, it can easily become gambling.
That said, it doesn’t mean you should 100% say no to it as your trading strategy of choice. When done simply and efficiently, forex scalping can be highly profitable.
Before you think of scalping, we should explain what it is exactly.
What is Forex scalping?
Forex Scalping is where a trader attempts to make numerous small trades to make many small profits, usually around 10 pips or so for each trade.
Over time, these small gains amount to a large sum of money.
To effectively scalp, you should trade instruments with the lowest spreads as every single pip counts.
This is vital because scalpers will likely have to take into consideration different fees they may have to pay for each trade, though this will depend on the broker you use. Ideally, you do not want to pay any kind of fees.
Perhaps the most famous scalper of all time is Paul Rotter who during the height of his scalping career supposedly made between $65 to $78 million a year over the course of 10 years.
While this is an ungodly amount of money, it should be mentioned that one bad trade can wipe out the value of several others.
On top of that, if you are too fast, sometimes you may open and close a trade at the same price, closing with zero profit.
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The Forex scalping Necessities
Forex Scalping requires a lot of things to be right. If you can’t get them all, you can’t be completely sure your strategy will work.
Scalping is perhaps the most demanding of all forex trading strategies. Without the right things in place, it’s like skiing without ski equipment; you need a lot to be fully-equipped and ready.
The Right Mindset
Scalpers need to be able to take a lot of stress and be very disciplined.
If you are not used to this trading environment, you may be better suited to swing or day trading instead where things take place at a slower pace.
It is like day trading in that you need to sit in front of your screen for long periods of the day, but different in that you need to be extremely well-focused. You need very fast reactions.
You also need to be very decisive and possess the ability to set goals very fast. You should be able to work out when to get in and out of a trade very quickly.
Scalpers also need to be prepared to get out of bad trades fast too.
If they have misinterpreted the direction the market is heading, their trade will start to become a loss. They need to be fast and act without emotion to accept the loss and get out.
The moment they stop following their strategy, they are risking a loss because they are not prepared for such environments. It is not part of their strategy.
If you lack patience and feel that you need to see the money constantly flowing in, then you have the right mindset to scalp the forex market.
A super-fast broker
As we mentioned earlier, you need to have lightning fast reactions and every little pip counts when scalping forex.
That means that the broker you choose must be able to execute the trades you wish to perform as quickly as you want.
Look for ECN, STP or DMA access as these types of brokers will give you greater access to the market, trading as close as possible to real market prices.
Market makers are not advised because prices fluctuate less. Forex scalpers thrive on volatility.
The broker you’re looking at may have specific account types that are ideal for scalping. Be sure to check them out and look at the reviews of their service.
Bear in mind, some brokers do not allow forex scalping and you need to first be sure you can forex scalp with them before signing up!
A super-fast platform
Your platform should also be able to keep up with your orders, or at least get as close as possible to them.
Fill or kill orders are a way to get the exact price you want. What they do is either place the exact order or, if they can’t, cancel the order instead.
Key things a forex scalping strategy needs
The number 1 thing forex scalpers need is volatility. Big movements in price, whether bull markets or bear markets.
Environments where there are explosions in price, short pauses, and then more explosions, are the best.
If the market is not volatile, it may be best to skip scalping, try a different trading strategy or just don’t make any trades until the right conditions emerge.
Great times to find volatility are when certain markets overlap, such as when the London market is open at the same time as the Tokyo or New York market.
You should also be able to identify trends and use them to your advantage. Whatever strategy you choose, you will likely need to spot key points where you can enter and exit the market.
Forex scalpers also use charts, ranging from one minute to an hour.
Charts bigger than an hour will not be useful as you need to focus on very small price movements, usually around 10 or so pips per transaction.
It is advised though that before starting a trading session, scalpers should look at daily charts to spot the highs and lows the currency pair may reach in that day.
Some forex scalpers avoid scalping up to 30 minutes before big news events. Others try to scalp it directly. This will rely on if you use fundamental or technical analysis or a mix of the two.
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Top five simple and profitable forex scalping strategies
Many of the best forex scalping strategies use indicators to tell traders when to trade. As a forex scalper, you may use a combination of the strategies mentioned.
Ideally, whatever strategy you decide to use, look for confluence, which is where you get at least two signs that you have found an opportunity to buy or sell.
By using at least two signs, you are more likely to get results. That said, finding confluence is very subjective and depends on what indicators you are using.
Let’s look at the simplest and most profitable forex scalping strategies.
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