Forex Market Scalping Strategy Guide (I)
There are multiple ways of profiting in forex, including swing trading or trend following. However, scalping is the method with the shortest trading periods. With this method, traders usually open a trade for 1-2 minutes, or 5 minutes at the very most. The idea is to benefit from short fluctuations in the market.
This series of articles will serve as a guide for scalping, but for the purpose of introduction, we can ask what makes this strategy popular and effective. Many of these considerations will then serve as the topics of further articles.
The first major reason for scalping is perceived safety. Scalping has a far shorter time frame than the other forex methods, and many traders argue that this limits their exposure to the market.
Of course, this limited exposure leads to a second major characteristic of scalping-a large number of trades. Some scalpers may open and close as many as several hundred trades within a single trading day.
This points to one of the major challenges for this style of trading. Since the number of trades is extraordinarily high, scalpers must find forex brokers with low transaction costs and fees. Before considering this style, make sure that your broker's commission structure allows for you to be profitable.
A third characteristic is the fact that scalpers rely on some type of leverage. The profit from each trade is generally quite small, and even with a huge number of orders, the results would hardly be worthy of the effort. Depending on the amount of leverage you use, this can eliminate any real security. In spite of their arguments to the contrary, scalpers can lose a day's work in a few bad transactions.
A fourth characteristic of scalping is that it is generally a full-time endeavor. This is a significant limitation, since the majority of forex traders only do it in order to supplement their income. Scalping requires constant and undivided attention. If you decide to use this strategy, expect it to dominate your time and efforts for as long as you are trading. It is generally best to set aside an extended period of time and eliminate any other distractions. This is unworkable for many traders, though when a scalper finishes for the day, his exposure is finished as well.
Some scalpers try to eliminate this problem by automating the process. In recent years, a vast number of robots and software automation kits have become available for scalpers. Unfortunately, most of these are unproven, and many make wild claims that stretch far beyond plausibility. Still, there is a real benefit in automating certain parts of the process. For instance, you might use software to execute redundant tasks like stop-loss, take profit and other orders, while doing the analytical tasks yourself. In this limited role, the automation can be a significant help by allowing you to execute more trades with less drudgery.
Scalping is a workable strategy if you know what you are doing and are willing to dedicate your full time energy to forex trading. Unfortunately, too many beginners try scalping based on the assumption that they can avoid risk. As any experienced investor knows, risk accompanies any genuine financial opportunity. After several months of practice, and with plenty of education, scalping is a great way to enter the forex markets. This guide will tell you some of the main things you need to know when getting started.
Please read the whole guide series at Forex-trading strategy.