What is scalping?
Scalping is one of the term you will heard a lot in the contemporary trading environment we are getting into.
So what is scalping, in the case of Forex, Forex scalping?
Scalping is a method of trading where a trader “skims” small profits continuously.
It is the act of entering and exiting positions several times in one single day, while trying to make profits during high velocity moves.
A scalper trader will act quickly on releases of economic data and other significant news or events that influence the trading activity.
Although similar, scalping is not the same as Day Trading. While day trading, a trader will open a position once or twice within one day, but will close it before the day is through. He will never leave the position open overnight or carry it into another session.
A Day Trader opens and closes positions once or maybe a few times a day based on information they obtain from five minute, fifteen minute or thirty minute charts. A scalper is even more feverish as he aims to skim tiny profits multiple times through going in and out of positions numerous times within a single day.
This trader makes trades according to data from tick charts or one minute charts.
As day traders chase after few profits involving dollars and cents per share or unit, scalpers aim to make numerous gains on trades involving between five and ten pips (fractions of pennies). They act fast and furiously when conducting transactions.
When trading on standard lots, these petty gains add up.
The average made on one pip for trading one lot is $10 and if five pips are involved, $50 can be made on a single trade. If this trade is successfully made ten times within a trading period, the trader can profit by $500.
Of course, if everything goes properly and without any problem. Sometimes just one single position takes the profit made through several winning positions down the drain.
One of the most effective Trading Strategies in Forex.
Scalping traders, trades the market to make small gains in very small periods of time, in other words buy a and sell them for a difference of very little margin. When scalping you do intra-day trading, you can buy and sell a value in less than one hour or in a matter of seconds, trying to obtain profitability, but it carries a large number of trades with a small profit or loss in each one of them.
They try continually, again and again, to buy at the price of demand and sell at the price of offer thus obtaining the benefit that provides the “spread” or difference of price between both.
Without a doubt the scalping technique is becoming a very popular technique in the last, years among the most important advantages are:
- Usually have high effectiveness there is no risk of “overnight” small losses in each transaction.
- Many opportunities to make daily gains,
- Many traders just think about the advantages of a certain strategy, and completely ignore the disadvantages involve in it.
Among the most important drawbacks are:
- It depends directly on the effectiveness of the Small Gains system on each and every trade.
- High level of emotional stress and psychological pressure.
- The broker must have a platform with Instant Execution.
- These strategies usually have a very low benefit
Once the advantages and disadvantages are acknowledged with this kind of trading, an analysis shall be done in order to ensure that this kind of trading fits our personality and is suitable for us as traders.
Tips for Scalpers Traders:
- Have your Scalper Strategy well-defined, there should be no doubt whether or not there is an entry signal to the market.
- When bullish trend you shall create more buying positions, and in bearish trend create more sales positions.
- It is recommended to use the price behavior as an important variable for the in and out to the market.
- Remember to buy at the price of demand and sell at the price of offer over and over again.
As a boxer, direct-crochet, direct-crochet; Over and over again, again and again, until the adversary is knocked down.
Normally a Scalper Trader is quick to take profit (few pips), we must also try to be quick in the making of losses (even faster than with the profits).
Several times, a very short term position can result in an excellent medium-term position, try to move your stop lost to protect profits once your transaction is in the profit territory.