Scalping – Forex Trading Strategies
A large number of traders new to the markets find the idea of implementing a scalping trading strategy to be appealing. Currency, equity, and futures markets are all ripe targets for aspiring scalpers. As the world’s largest market, the forex is a popular venue for short-term and long-term traders alike.
Due to its compressed timeframes, a forex scalping strategy is considered to be an ‘intraday’ approach to the markets. It allows a successful trader to make a lot of money in almost no time at all. In addition, it is a relatively low-risk strategy that can yield very big profits.
Although the typical scalping trading strategy is considered low-risk, it relies on trader attentiveness and can be easily compromised if emotions get in the way of flawless execution. Traders who choose to use become practitioners of this strategy must pay close attention to the market and exhibit extraordinary discipline. These tasks are emphasized during the peak trading hours of the day.
What is a Forex Scalping Strategy?
A forex scalping strategy relies on placing a large number of very short-term trades across a wide variety of currency pairings. Each trade on its own doesn’t have the potential to bring in big money. However, when taken collectively and played in the correct fashion, the small profits can add up very quickly. With a vast number of trades being constantly opened and closed, lasting as little as just a few seconds or minutes, large daily profits are possible.
The recommended charts to use in any scalping trading strategy are the 1-minute and 5-minute charts. Some traders also use 15-minute charts, but anything above a 15-minute duration is not to be considered scalping. Take a look at the forex scalping strategy example on the chart below (1 min.GBP/JPY chart):
Not all traders will have success scalping as it requires a very specific skillset, mindset and a lot of self-discipline. Beginners should not try the scalping trading strategy until they have gained some experience. Traders who have a hard time controlling their emotions should also pass on becoming a scalper and focus on longer, safer trades. A comprehensive self-inventory is a useful exercise to complete before deciding upon a definitive trading approach.
Using the scalping trading strategy, a trader is able to find quick trading opportunities during the day without having to spend all day in front of the computer. An optimal time for implementing a forex scalping strategy is when the European and American markets are both open. This occurs daily during the morning hours of the European market.
The Advantages and Disadvantages Of A Scalping Trading Strategy
Any clearly defined trading strategy involves a collection of pros and cons. That is why the entire discipline is called trading — something is given away in return for something else. Below are few of the primary advantages and disadvantages to practicing a scalping trading strategy.
- Scalping involves a fairly low degree of risk, with minimal per-trade losses.
- Opportunities are plentiful throughout the day. Especially when it comes to the executing a forex scalping strategy. A vast number of currency pairs make finding a trade elementary.
- Scalping allows for diversity in markets, as you trade in several different markets at once.
- Scalping can be profitable even if you trade only a small amount each day.
- Over time, profits add up and can reach great value.
- Scalping requires the utmost attentiveness of a trader. The trader must enter and exit a multitude of trades rapidly throughout market hours.
- In scalping, emotions must be ignored as they can get in the way of making sensible, logical decisions.
- 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. This is a crucial aspect of implementing any forex scalping strategy. 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 will not be worth the time or energy.
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 allows spreads that start at 0 pips. A small commission on both sides replaces the spread, thus making this method more suitable for any forex scalping strategy. This and other features may be used with some brokers such as XM.COM and Markets.com which are also well-equipped to assist in the application of scalping strategies.