Introduction to scalping

Introduction to Scalping

Introduction to Scalping Scalping is the name given to a short but thrilling foray into the Forex market. It is characterized by a time frame that lasts from a couple of seconds to not more than a minute, high leverage, a large number of trades and very tight limits to trading to prevented unwarranted losses. For people interested in a plain explanation of Forex scalping and other strategies: visit: ForexTradingPal.com Aim of scalping The aim is to take advantage of small price changes, rather than long-term trends and supply-demand positions. The profits may be small, individually taken, but they add up due to the comparatively huge numbers of trades which scalpers carry out in a given day. As a scalper you need to set yourself rigid stop loss positions, and keep your positions for minimal durations till they earn profits of 2 or 3 pips per trade, which works out to a decent figure. For instance, if you are operating with 100, 000 units with EUR/USD, you will earn $10 per pip, and if you close trade at a 3 pip profit, you have earned $30 in seconds. What to keep in mind Factors affecting the outcome of scalping are: spread, volatility, liquidity, speed and your broker. Low spreads are always better and it is best to keep away from volatile markets. Make sure transactions are carried out at speed and there is no slippage, which will hurt your profits. It is important to ensure that positions can be liquefied immediately. Finally choose a broker with an electronic communications network instead of a dealing desk, as the latter will tend to see scalpers as competitors instead of as clients for whom they need to provide the best deals. Some other factors that scalpers have to be conscious of are leverage, average daily range of currencies and suitable trading hours. While it is true that the larger the leverage the more your profits, the reverse is also true, maximizing leverage may also maximize your losses. So it is best to choose the middle ground and be reasonable, stick within the 20:1 - 50:1 limit till you have gained sufficient expertise. Choose currencies with a wide average daily range, because these are the ones that are likely to yield the most profits. Remember that although the Forex market never sleeps, individual currencies do. So learn the patterns of the currencies you are interested in, and trade during the times they are most active. Scalpers must also remember that expected profits and expected losses usually pan out in the long run. A large number of small gains are likely to be negated by a few large losses! Minimize risks So, analyze your chances well, calculate risks, take into account that you have to pay spreads each time you open a trade, and these will add up when you are dealing in multiple trades. Move to break evens as soon as possible, take profits at reasonable levels and exit if you see the price freezing for longer than you expected. If you keep all these in factors in mind, you can be a successful scalper.