Many traders who trade on the forex exchange like to use a scalping strategy. Such a strategy involves a series of short-term daily transactions and obtaining small income from one transaction. However, the total profit for the day is formed by a large number of transactions - sometimes up to 500 trades per day. In general, trading time lasts from a few seconds to several minutes.
Scalping is the most highly profitable trading method, which is rightly considered the peak of the trader’s skill. Scalping requires a trader to have a high understanding of many factors: the trading behavior of the used instrument, market expectations, news and statistical background, as well as high concentration and discipline. All this, in turn, requires experience and a certain “technique” for performing scalping deals.
Moreover, scalping strategies themselves are constantly evolving after the market as a whole. But there are also quite simple methods that allow you to extract income from intraday price fluctuations - in fact, which will be discussed in this article.
As for the application of the scalping strategy, heated debate is still ongoing. Some argue that it is better for beginners to apply scalping, because this type of strategy does not require global market technical and fundamental analysis, and its application can be good practice for gaining experience. Others argue that scalping is an advanced strategy and requires certain knowledge and an action plan, as this will determine the right direction and trends in the market. To decide whether a scalping strategy is suitable for you, you need to study its advantages and disadvantages.
The benefits of scalping
- One of the most obvious benefits of the usage of scaping strategy is making large profits in a short time. For example, you can open a deal at a price of 15.500, and after a few minutes close at a price of 15.520. Thus, in a couple of minutes you earned $20, and given that there can be several tens of positions, the amount earned will be quite impressive.
- The second undeniable advantage is quick training. The use of long-term trading requires a thorough fundamental analysis of the market and the study of the main factors. While trading on short timeframes, you can use small market patterns and technical analysis.
- The use of scalping allows you to get a good profit with a minimum deposit. Getting from $100 from 10 to 20% per month will not greatly improve your financial situation, and 20% daily can significantly replenish your budget.
Disadvantages of scalping
- Perhaps the key drawback of scalping is the huge risk. Making large and fast profits is always fraught with big risks, since determining the direction of a trend on short timeframes is sometimes unpredictable.
- Most brokers do not welcome scalping traders. Of course, no one directly prohibits the usage of scalping, but many brokers set a limit on the time of a transaction or on the number of transactions per session. Some brokers limit the duration of a profitable operation to 10-15 minutes.
- It makes sense to use scalping if the size of the spread (commission) is minimal. Usually it is recommended to use no more than 3 points. Based on this, you have to limit your choice of a currency pair - in many pairs the spreads are too high.
- Since the scalper makes from several tens to several hundred transactions per day, it takes a lot of time to be at the workplace.
- For the implementation of short-term operations you need to use leverage. Therefore, one or two unsuccessful transactions can significantly affect the deposit.
The scalping strategy can be used not as the main one, but as an auxiliary one, that is, you can trade in long-term positions where the price is stable, and at the same time use scalping and make short-term profit.
Favorable conditions for scalping
In order to start using a scalping strategy, you need to have a set of components that will allow you to successfully trade and make a profit. One of these components is the right choice of broker.
- Before you give preference to any forex brokerage company, make sure that it supports scalping.
- Pay attention to the quote - the five-digit quote is considered optimal. In this case, the trader can put a small stop and 5-10 points, in this case it will be 0.5-1 points.
- A rather controversial issue for traders is the size of the spread. Some traders prefer floating spreads, others prefer fixed spreads. However, most traders believe that a floating spread is more suitable for short timeframes, and fixed spreads for large ones.
- Execution of orders. A pair of order types is used - an instant and pending order. Instant order depends on the actual speed of operation. Speed in turn depends on a number of other factors. This can only be determined in practice by opening several orders at once with high market liquidity.
- Another component for a successful profit is trading time or trading session. The best time is when the market is most active. Activity increases during the intersection of two trading sessions, when the number of players almost doubles. Increased activity is also observed before the news release, so you need to follow the news release schedule.
- Choosing the right tool. Most often, these are currency pairs that have the most active movement and more news.
Summing up, we can say that not everyone can use scalping. In order to achieve good results and receive stable profits, a trader must have special qualities. First of all, this is attentiveness, the ability to concentrate and not pay attention to extraneous factors. Secondly, the scalper must have sufficiently strong nerves and self-control - not everyone will be able to watch the working terminal intensively throughout the day and quickly make the right decisions.
However, if you think that you have all these qualities or have sufficient experience, then a scalping strategy can bring you good profit.
Scalping strategies are constantly evolving and changing, not spasmodically, but gradually, allowing traders to adapt their system to these changes. And, in fact, the property of adaptability and the ability to notice micro-changes in the market give in the long run the possibility of increasing scalper earnings.
Author: Kate Solano, Forex-Ratings.com