Scalping Forex Markets
Scalping is short-term trading taken a step further. Whereas day traders might be looking towards taking positions that deliver sufficient returns over the course of the trading day, scalpers are looking to trade over the micro-term – often around an hour – with a view to taking a quick profit. Scalping is for many reasons a preferred strategy as far as most beginners are concerned. Beginners tend to see scalping as the lowest risk strategy, with profits being banked virtually as soon as they arise. For 1 or 2 PIPs here and there to work, however, you need to seriously increase the number of trades you engage in in order to compensate for smaller daily returns, and for that reason, many successful scalpers quickly graduate up to arguably more involved, research-intensive strategies.
What You’re Looking For
When it comes to identifying trading opportunities for scalping, you need to be looking for markets that are liable to move in the immediate future – as in, within the next couple of hours. This usually means looking to news items and goings on that might indicate a potential market movement soon. Remember, you’re not looking for the home run trade, or anything near it – you’re simply looking to find an opportunity to deliver a couple of PIPs, and as a result there are many opportunities you can find. The trick is to ensure that through your research efforts and input you are able to identify these opportunities, and in sufficient number to return a profit.
Which Trader Does This Suit?
Scalping is definitely suitable more so to the beginner than the experienced trader. There are costs associated with trading on the ultra short-term in terms of broker fees, and so the more you trade the more costs you have to bear. As a result, more experienced traders tend to eventually favour less work for greater returns through an alternative strategy, although that does incorporate a greater risk profile. Generally speaking, if you are beyond the stage of being a beginner, you’re probably better off searching for strategies that are less hard work and frankly less challenging, although marginally more risky.
Strengths and Weaknesses
The core strength of scalping as far as forex is concerned is that it all happens very quickly. Less time in the market means a less serious market risk – that is, the risk of being exposed to the market for that period of time. Furthermore, when profits do appear, however briefly, you can grab them with a view to amassing a stockpile of smaller earnings that add up to provide your overall yield. From this perspective, it can seem attractive for traders looking to get started with the lowest possible amount of risk. That said, there are drawbacks.
Firstly, scalping is a lot of work, because there is the need to constantly research new positions, and the returns you get from each position you take are so minimal that at times it can seem like more effort than its worth. While you do have lower risks on individual trades, it is often more difficult to get there overall without larger returns on trades.