Many novice traders find scalping to be a very appealing forex trading strategy. The forex scalping strategy is an 'intraday' trading strategy. It allows a successful trader to make a lot of money in almost no time. It is so appealing because it is a relatively low-risk strategy and can yield very big profits.
Although scalping is considered low-risk, it relies on an attentive trader and can be compromised if emotions get in the way. Traders who choose to use this strategy will also have to pay close attention to the market, especially during peak trading hours throughout the day.
What is the Scalping Trading Strategy?
Scalping is a forex trading strategy which relies on placing a large number of very short-term trades. Each trade on its own doesn’t have the potential to bring in big money but as a whole, if played right, the trades can add up to quite a lot. Trades are constantly being opened and closed and can last as little as just a few seconds or minutes.
The recommended charts to use in scalping trading strategy are 1 minute and 5-minute charts. Some traders also use 15-minute charts but anything above 15 minutes would not be considered scalping. Take a look at the scalping example on the chart below (1 min.GBP/JPY chart):
Not all traders will have success with scalping as it requires certain skills and a lot of self-discipline. Beginners should not try this trading strategy until they have gained some experience. Traders who have a hard time controlling their emotions should also steer clear of scalping and focus on longer, safer trades. Using the scalping trading strategy, a trader can find quick trading opportunities during the day without having to spend all day in front of the computer. The best time for scalping is when the European and American markets are both open, or during the morning hours of the European market.
Advantages and Disadvantages of Scalping Trading Strategy
1. Scalping involves fairly low risk as the losses are low.
2. Scalping opportunities are plentiful throughout the day.
3. Scalping allows for diversity in markets, as you trade in several different markets at once.
4. Scalping can be profitable even if you trade only a small amount each day.
5. Over time, profits add up and can reach great value.
1. Scalping requires the attentiveness of a trader and that the trader enter and exit trades rapidly.
2. In scalping, emotions must be ignored as they can get in the way of making sensible, logical decisions.
3. A trader must be able to deal with a lot of pressure when using the scalping trading strategy.
Which Brokers are recommended for Scalping?
The most important thing in scalping is that trades be executed very quickly as they often rely on just 1-minute time frames. This makes it very important to choose a broker who can execute trades in real time in order to not miss the opportunity. It is also important to choose a broker who offers a low spread. Since scalping relies on opening and closing many trades over a short period of time, a high spread will leave very small profits for the trader and therefore will not be worth his or her time. When choosing a broker for scalping, look for a broker who can deal with short time frames efficiently and who is very competitive in offering a low spread.
A new technology offered by ECN Brokers is allowing spreads that start at 0 pips. A small commission on both sides replaces the spread making this method more suitable for the forex scalping strategy. This can be accessed from the BrokerPlus500 platform web and can be downloaded.
XM.COM and Markets.com are two brokers which are also recommended for scalping.