A scalping method is often used by beginner traders and those who look to acquire real-time profits that are not necessarily high but regular and quick. The key idea of scalping is to hold a position for the number of hours necessary to close it once even the minor profit becomes possible. Doing so multiple times a day brings satisfactory accumulated profits that traders can use for larger deals later.
Forex scalpers rely on a variety of signals to make their trading choices, and the lack of time for thinking usually means they can depend on the technical analysis or catch the general tendency from observing the market closely.
What Are the Types of Scalping?
Scalping has many forms, and traders decide which type works best for them, depending on their expertise and interest.
This type of scalping is ideal for traders who can quickly react to the hottest news and make profits by catching the surge in volumes and volatility peaks.
Pipsing is an option for traders who know how to handle the risk, as it is the most profitable and high-risk type of scalping. Usually, they would use the M1 interval with transactions that are held for less than a couple of minutes. Traders with perfect focus and attention span can benefit from this method the most.
This type of scalping allows for more time to think than pipsing, and therefore more traders use the middle-term method with M5 intervals. The leverage is voluntary, holding time varying between 7 to 10 minutes on average.
As it states from the name, conservative scalping is the safest form of scalping. It is usually done using the M15 interval, with a holding time of 20-30 minutes.
How Does Forex Scalping Work?
Below are the steps involved:
- Step 1. Choose a broker or create a trading account for yourself.
- Step 2. Choose one of the scalping strategies or types and build your individual trading plan.
- Step 3. Choose to open a position, going long or short.
- Step 4. Learn how to mitigate the risks.
And here are the main rules:
- Go for high trading volumes and high liquidity.
- Choose the right time to trade depending on your currency of choice, as well as the day of the week and time. The busier the period- the better.
- Some popular assets to consider for scalping are majors and cryptocurrencies after the important news releases and breakthrough events.
- Don’t hold your position open for more than 30 minutes to 1 hour.
- Close your losing positions as soon as possible and change the trading strategy.
- Use M5-M15 time frames.
Here is how to understand if sculpting for you:
- You are ready for fast trading and have the resilience to cope with the pressure of deciding in a matter of seconds.
- You can focus on a chart for hours in a row and make a trading decision right after with no time for extended analysis.
- You are flexible and so changing directions as soon as you get a signal is a game for you.
- You are ready for small profits that accumulate into larger ones depending on your speed and skills.
Pros of Forex Scalping
Scalping is an excellent way for beginners to make quick profits as well as learn trading based on fundamental analysis primarily, followed by technical tools and intuition. It definitely prepares you for bigger deals of intraday or long-term trading and teaches focus, resilience, and stress management.
Those traders who mastered scalping, will on average, make higher profits in 24h than an average day trader due to flexibility in changing directions and the possibility of trading fiat. They will also be able to avoid any swap costs for keeping the position open for a long time.
Cons of Forex Scalping
The biggest disadvantage of Forex scalping is the emotional stress that some traders experience from having to make quick decisions and stay intensely focused despite the market noise. There is little time to hesitate; even the shortest delay can create more losses than the position could bring in profits. Scripts and trading robots emerged as a solution to this problem, so feel free to read about it if you feel like the loss of focus prevents you from doing your best in scalping.
Furthermore, it is essential to remember two things. First, scalping does not free a trader from the spread. It remains stable, regardless of how long the position is open. Second, scalping usually means traders will pay a bigger deposit for leverage, as it will significantly increase the trade risks.
Overall, deciding whether scalping is the right strategy for you or not is less complicated than it seems. There are plenty of options to train on a demo account and get the practice you need before moving to real-life trading.