Forex Trading Strategies: Scalping Techniques

Forex Trading Strategies: Scalping Techniques

As the name suggests, scalping is a way of taking small profits at a regular interval by entering and exiting trading positions many times a day. It is unlike daytrading wherein a trader opens a position and closes in the current session; in scalping the trading frequency is higher than the daytrader’s trading frequency.  Instead, a scalper tries to take smaller profits many times during the session. If you are a forex trader that is looking for new ways of making money in the forex market, it is a good idea to review the materials in the forex learn centre that is made available by easyMarkets.

As a point of comparison, the daytrader normally looks at a 5-minutes or 30-minutes chart to initiate a position, while scalper looks at 1-minute chart or tick charts to initiate a position.  Scalping can be a profitable strategy, as these traders scalp between 5 pips and 10+ pips for each move in order to accumulate profits. For example, a scalper who is interested in 5 pips, initiates a high-volume trade and closes as soon as the initial targets are met. If the trade is profitable he makes $5 per trade on a forex mini account, and if the trader can repeat these profitable moves 100 times a day then he makes  a nice gain of $500 in a session.

Attention points:

Before yourself as a scalper, you must bear in mind the following important points:

  • Broker and platform: The most important aspect of scalping is a broker and trading platform. As the frequency of trade is very high, it is of prime importance to understand the margin requirements and brokerage of a broker, as this may have a negative impact on overall profit made from the trade. Also, it is worth understanding and being comfortable with the platform, as one wrong click can change your game.
  • Choose the right pair: Scalper must choose one of the most liquid currency pairs to trade. Though forex trade happens 24 x 7, one must understand the period of quiet and volatile trade, in order to commence scalping.
  • Avoid Slippage: The difference between order placement price and actual execution price is called slippage. A scalper must avoid slippages, as the game is for few pips, and if order placement and execution happen few pips away, it may eat into your profit.
  • Back it up: Scalper must have backup options for internet outage or other outages. (S)he should have a plan ready in case of an outage and should also be comfortable with other trading options like the phone.
  • Automate: An automatic system should be available to produce a minute chart or tick chart, to enter and exit from a trade.
  • Understand the market direction: As a scalper, one must have a clear understanding of trends, to have profitable trades.

Scalping can be profitable at the same time very risky too. Hence, scalping must be handled with care.

 

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