Forex scalping specializes in making a profit from reselling and small price changes. It’s a term used in day trading to prioritize making high volumes from small profits. It requires a trader to have a good exit strategy as one huge loss can remove the gains that the trader worked hard to make.
To be successful, it’s important to have direct access to a forex scalping broker, a live feed, and the stamina to undergo many trades as you need intense concentration for this risky process.
How Does Forex Scalping Work?
Scalping assumes that most stocks will finish at the first stage of movement. However, it’s uncertain, as some stocks continue advancing and some stop to advance. It’s not like day trading where a trader will open a position then close it during the trading session. A day trader may look at a position a few times in a day but scalping requires trading multiple times in a session.
The strategy is to aim for many small wins that can easily turn into large gains. You can achieve small wins by profiting from fast changes in the bid-ask spread. The main goal of scalping is to open a position or bid price then quickly close it a few points lower or higher for profit.
Pros and Cons of Forex Scalping
While the goal of forex scalping is simply to gain small and regular profits, there are several advantages and disadvantages in this type of trade. Here are some pros and cons of forex scalping:
- It can be very profitable for traders who use it to supplement other kinds of trading or as a primary strategy, and it can bring small, regular profits.
- It allows you to place several trades every day, suitable for people who like to always stay involved in the market.
- You only need to market and move a few pips to reach your goal, unlike other trading strategies wherein the market moves substantially to make a profit.
- It can be difficult to predict the market movement on a minute-to-minute basis.
- You have to be a consistent winner to accumulate profits.
- Many experts say that it’s impossible to use technical indicators to gain consistent profit with short-term scalping trades.
Tips for Forex Scalping
Newcomers to forex scalping need to ensure that the trading style matches their personality as it requires a disciplined approach. You need to quickly spot opportunities, always monitor the screen, and make quick decisions. As there’s usually no time to think, the ability to “pull the trigger” is important to cut a position if it moves against you by about two or three pips.
Here are a few tips that can help if you want to try your hand at forex scalping:
- Keep Frequency and Costs in Mind
Since scalping involves hundreds of trades, a beginner should keep costs in mind during trading sessions. Frequent buying and selling can have costly commissions, so it’s crucial to pick the right online broker. The broker should provide competitive commissions and requisites like direct access to markets.
- Be Equipped with Technical Analysis
Beginners should know the basics of technical analysis to fight the increasing competition in the market today, which is dominated by high-frequency trading or HFT. Most trades also take place away from the exchanges that don’t report in real-time. It’s recommended that scalpers use technical indicators for short-term opportunities like multiple chart scalping.
Multiple chart scalping is a technical indicator that you can use by creating a 15-minute chart. This helps you keep track of background conditions that can affect your performance. Your highest profits will come when the scalps align with resistance levels and support.
- Pick More Volatile Pairs
When choosing currency pairs in a scalping trading strategy, an important factor is volatility. Since it seeks fast gains, the market needs to move faster to produce good results. Some examples of currency pairs with high volatility are GBP/AUD, GBP/NZD and AUD/JPY. Silver and Gold prices also have a great degree of variation during trading.
Less volatile pairs might take more time for the rates to move. Instead of a five or ten-minute trade, you might wait for more than half an hour for the pair to reach the optimum level.
The Best ECN Brokers
Fair Forex provides professional ECN brokers that provide low commissions, fast executions, and expert support. You can save more in broker fees, and you’ll be supported by exceptional traders.
Book a consultation with us today by calling 1-844-600-3247 or filling out our online form.