Forex Scalping : strategy that you must know
Scalping is a well-known and commonly used form of trading which suits trader who want to make large numbers of trades earning small profits each time. This happens by opening a trade, buying a currency pair, and closing it as soon as the smallest profit is made – usually between 3 to five minutes – completely evading risk even if the profit is too small to make a difference.
The main base of scalping is to make a lot of trades daily – can be up to over a hundred a day – and aim on never losing any money through those trades, but steadily keep making small profit among small profit slowly building up a larger account.
The downside of scalping is that it requires large amounts of deposit, to be able to handle the amount of leverage which must be taken to make the short and small trades worthy. It also demands a lot more attention, as none of the positions can be losses, otherwise the other small trades will be imbalanced by losses and therefore become entirely useless. It takes clear and attentive concentration skills to achieve that.
Of course needless to say, Scalping is time consuming, and would take a trader who can commit to trading for hours on a daily basis in order to keep building up from the small profits made with each trade, therefore it would be very hard to keep up as a scalper if one is not already a full time trader.
Based on all these facts it makes sense to say that scalping is not for everybody. It is mainly popular due to the fact that it is technically risk free, because even when a loss is made it is small, and over time it depends on no losses being made, but no big profits either. A constant scalper would choose a safely earned small amount over the risk of a great profit opportunity.
An important aspect of scalping is to always keep consistency in trade sizes, if a trader uses erratic trade sizes while scalping; they are bound to lose a lot of money. If random sizes are chosen it is most likely that an oversized, leveraged loss will erase all the profits of a day’s work, defeating the whole principle of scalping. All trade sizes must be the same, making the amount of losses and gains equal, therefore keeping the trading strategy balanced.
It is also important to mention that scalping is a popular method to be applied on automated trading programs, due to the fact that it is time consuming and needs very specific and accurate decisions which can be very easily effected by emotions like excitement or greed.
The way programs work is by trades being placed through the trading day and the system is based on a set of signals derived from technical analysis charting tools that create a buy or sell decision, at the points which the trader has programed to indicate the right buy or sell conditions.
Many people find scalping through programs effective and doable, because it does not require their immediate presence, or their constant attention.
Over all, to become a good scalper, attention, concentration and time are needed, with a lot of practice, and having the intuition to pull out at the right time, even when the profits are too small to seem worthy.
Scalping is a form of trading strategy with which traders buy a currency pair and hold it for the shortest time possible and closing as soon as any small profit is made. With large leverage small changes in a currency make a difference, and therefore even with the smallest changes a trader makes a small profit and closes the positions before risking the loss of the profits. A large number of trades has to be made earning a small profit each time to sum up to a decent number of profit.
Forex Scalping can be either manual or automated, in the former the trading is done by the trader on a step by step basis and completely controlled by the trader, in the latter the trader teaches an automated trading system, or trading robot to perform the strategy. Scalping is a popular strategy for automated systems.
Signals and Indicators are used by traders to receive constant updates on predictions of currency movements. As a scalper there needs to be high probability, support and resistance and the combination of different indicators.
One type of Scalping indicator is the buy and sell indicator which is, in the form of charts with candle sticks. The line on the chart moves above or below candlesticks signifying whether the currency is moving upwards or downwards and whether it’s best to buy or sell.
Another form of indicator is the stochastic indicator, It shows oversold and overbought markets, through a chart with a line in the oscillates up or down. One line represents overbought and one line represents oversold.
If it tells us a market is overbought it supports a short position while if the market is oversold it means the best odds are on a long position. Again this indicator is best when used in combination with different indicators.
Using indicators are important for scalpers because the small positions to be opened need to make a small profit and be moving in the right direction in order for the overall trading to be profitable.
Trading robots and scalping are two things in Forex that go hand in hand, the two complement each other perfectly and were made for each other.
There are many strategies that can be put for a trading robot, some are predetermined, others are set to follow specific strategies designed by the trader, and others automatically learn the patterns of a trader through the platform and mimic them, but scalping is a strategy perfectly fit for a trading robot.
Scalping is a tiresome and time consuming strategy which even though can be successful can easily wear out a trader, so traders use trading robots a lot of the times to get more trades executed daily, and eliminate the emotional factor that effects trades drastically.
Scalping – whether automated or manual – is a strategy based on making very short trades of 3-5 minutes and closing the position as soon as any profit is maid, avoiding the risk of a market change and the loss of the profits.
Because all the profits made are very small, it requires many trades – an average of 100 – a day in order for the profits to amount to anything considerable. That is where scalping fits a trading robot like a glove, and trades can be made around the clock, for trading robots scalping is a very simple strategy with very low risk, and easy to execute.
The strategy can either be applied to a robot or expert advisor, or a scalping trading robot can be purchased. There are many times of robots, some that can be adjusted and customized and other that are specifically designed to perform a specific type of trading.
A scalping robot that is designed to only perform scalping strategies would be considerably cheaper as it isn’t as full rounded service without many options.
If the robot can accept different strategies make sure the robot is scalping friendly, and in all cases make sure that the platform you are using is scalping friendly because some platforms do not allow scalping and consider it a violation of terms and conditions.
Disadvantages of scalping
Scalping is a popular trading strategy that is used by many to make profits, small profits which slowly gather up to make a decent amount of profits. But it is a strategy which is harder than it may seem on first glance.
Scalping is very tricky, because it minimizes risk of losing each trade, it is over all risky because on wrong trade can wipe out all of the days profits, because the profits are pretty small. It needs a lot of consistency, from trade sizes, and take profit, to stop loss orders they all need to be entirely the same so they can balance each other out, instead of having one potentially wipe out all the other successful ones.
The best conditions for scalping are calm markets where activity is quiet and volatility is low, they allow traders to see and use small fluctuations, over long times without any risk, and slowly get their profit.
So scalping during news releases, or during strong volatile mirco trends, will get a trader nowhere.
A scalper needs to be calm and patient, and focused, and create sizable income from scalping, by taking small risks, which can be very costly if lost, and that takes a lot of emotional control, and strong confident decisions. If a wave of big changes comes over a scalper it will drown him and will lose all his profits.
For scalpers volatility is not something they can utilize or exploit, it simply makes it impossible to make any good money. A scalper has to identify a trend, and exploit it with small sized and numerous orders. He will have to make profits and suffer losses run against time, open and close positions with different scenarios, all the while paying the commission included in the spread for the broker every single time.
Brokers get paid automatically through a small percentage of the spread whenever a position is opened, and with such small profits being made, these profits can easy be compensated with the commission for the broker, making them amount to nothing. With many trades – 100 trades a day on averages – being opened daily, the broker makes more, and gets the better end of the deal than the trader, because whether a trader is losing or gaining, he will be paying the broker.
Over all scalping is a proven successful method of trading, but it works best with people who have the eye and patience for it. It is also a very popular method for trading robots.
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