Scalping is similar to those suspenseful thriller movies that keep you on the edge of your seat. It’s fast-paced, exhilarating, and mind-bending all at the same time.
Scalp trading, often known as scalping, is a popular trading approach distinguished by relatively short time periods between transaction entry and exit. These types of trades are often held for about a few seconds to a few minutes at most!
The primary goal of forex scalpers is to capture relatively little sums of pips as many times as possible during the busiest times of the day. Its term is derived from the manner in which its objectives are met. A trader is attempting to “scalp” a large number of tiny profits from numerous trades during the day.
What makes Scalping so tempting for traders?
Even in relatively calm markets, smaller moves occur more frequently than larger ones. This means that a scalper can profit from a variety of tiny movements.
Scalpers can place hundreds of trades in a single day, looking for modest returns.
At the end of the trading day, all positions are closed.
Because scalpers must essentially be glued to the charts, it is best suited for those who can devote several hours to their trading.
To be effective, you must have great focus and rapid thinking. Such quick and intense trading is not for everyone.
The idea behind scalping is that a series of tiny wins can quickly add up to enormous profits.
These minor victories are obtained by attempting to profit from brief fluctuations in the bid-ask spread.
Scalping focuses on larger position sizes for lower gains in the quickest amount of time: seconds to minutes.
The premise is that price will complete the initial stage of a movement in a short period of time, allowing you to profit from market volatility.
Volatility in the market is a scalper’s best buddy!
With extreme market volatility, scalpers can open a long trade, rapidly close it, open a short position, quickly close it, and then go long again.
The primary purpose of scalping is to open a position at the ask or bid price and then swiftly close the position for a few points higher or lower profit.
A scalper seeks to “cross the spread” rapidly.
For example, if you go long EUR/USD with a bid-ask spread of 2 pips, your position begins with a 2 pips unrealized loss.
A scalper aims to transform that 2-pip loss into a gain as soon as feasible. To accomplish this, the bid price must rise sufficiently to exceed the ask price at which the trade was initially entered.
You Might Be A Forex Scalper If:
- You like fast trading and excitement
- You don’t mind being focused on your charts for several hours at a time
- You are an impatient person who doesn’t like to wait for long trades
- You can think fast and change bias, or direction, quickly
- You have fast fingers (put those esports skills to work!)
Some Things to Consider if You Decide to Scalp
Trade Only The Most LIQUID PAIRS
Because they have the highest trading volume, pairs like the EUR/USD, GBP/USD, USD/CHF, and USD/JPY have the tightest spreads.
Because you will be entering the market frequently, you want your spreads to be as tight as possible.
Trade Only During The Busiest Time of the Day
The most liquid times of the day are during the session overlaps. This is from 2:00 am to 4:00 am and from 8:00 am to 12:00 noon Eastern Time (EST).
Make sure to Account for the Spread
Because you will be entering the market frequently, spreads will play a significant role in your overall profit.
Try Focusing on One Pair First
Scalping is a very intense game, and if you can focus all of your energy on one pair, you will have a better chance of success.
Trying to scalp numerous pairs at the same time as a newbie is borderline suicidal.
If you become accustomed to the pace of things, you can begin by adding another pair and seeing how it works for you.
Make Sure you Follow Good Money Management
This applies to all types of trading, but because you are making so many trades in a day, it is extremely crucial that you follow risk management methods.
Major News Report can Throw you Off
Trading around highly anticipated news items can be extremely risky due to slippage and excessive volatility.
It stinks when the price unexpectedly jumps in the opposite direction of your trade due to a news report!