Scalping in Forex
If you think that you have the heart to make split second decisions, countless times a day than scalping may be perfect for you.
Scalping at its core is very similar to day trading, only done at an even more frenetic pace. The aim of scalping is to try and “skim” small amounts of profit several times a day by going into and out of positions. While with both day trading and scalping you will never hold a position overnight, with scalping you may be opening and closing hundreds of trades a day hoping to gain as little as 5 basis points each trade. Analysing tick charts and one-minute charts, scalpers aim to try and catch volatile movements in the markets caused by the release of economic data, news stories, financial figures and whatever else they have at their disposal to try and pre-empt movements in the market.
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Even though scalpers close trades when they have only gained 5 – 10 basis points, it can be extremely profitable due to the sheer number of trades they make and the leverage that they have when making them. If a pips value is £10 and you’re making a 5 – 10 pips each trade and you then repeat this hundreds of times a day you can start making serious profits from this process. Not every trade will be profitable and as a scalper you need to be prepared to cut your loses short as soon as you see the trade losing 2 – 3 pips without having time to fully analyse the decision.
What makes a scalper
Due to the high pressure involved with being a scalper it is a type of trading only cut out for certain personalities. If you are happy to spend hours in front of a screen, constantly switched on, monitoring data coming onto your screen than you may enjoy scalping. This fast pace trading is perfect for those who enjoy fast trading and excitement and are able to make quick decisions without taking time to assess all the implications and information behind it. If you’re someone who is easily stressed, or likes an overview of a market and delving into the facts and figures before making a decision than you should probably steer clear of scalping.
Where to trade
As a scalper you want to trade on the most active markets available and therefore Forex markets are perfect for this, with the most traded 3 currency pairs being; EUR/USD, USD/JPY and GDP/USD. As a result, the best times to trade are when the both London and New York are trading as these are the most active Forex locations. When looking for a broker to trade through remember that ideally for scalping you should be looking for the platforms who offer the lowest spreads and the lowest commissions because with the low profit margins, the higher these are the more risk you are running with each trade. Always practice on a test account before investing any money into it. Having an understanding of how the system works is crucial, as, with such little time to make decisions, even a small error could prove costly.
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