Scalping – Short Term Forex Trading Strategy
Many novice traders find scalping to be a very appealing Forex trading strategy. The scalping strategy is an intraday trading strategy and it allows a successful trader to make a lot of money in no time. It is so appealing because it allows for a relatively low risk and can yield very big profits. Although scalping is considered a low risk strategy, it relies on the trader being very attentive and composed as emotions can get in the way when it comes to this Forex trading strategy. Traders who choose to use this strategy will also have to pay close attention to the market, especially during peak trading hours throughout the day.
What is scalping?
Scalping is a Forex trading strategy which relies on placing a large number of very short term trades. Each trade on its own doesn’t have the potential to bring in big money but as a whole, if played right, they can add up to quite a lot. Trades are constantly opened and closed and can last as little as just a few seconds or minutes. The recommended charts to use in scalping strategy are 1 minute and 5 minute charts. Some traders also use 15 minute charts but anything above 15 minutes would not be considered scalping. Take a look at a scalping example on the chart (1 min. gbp/jpy chart):
Not all traders will have success with scalping as it requires certain skills and a lot of self discipline. Beginners should not try this Forex trading strategy until they have acquired some experience and traders who have a hard time controlling their emotions should also steer clear of scalping and focus on longer, safer trades. Using scalping, a trader can find quick trading opportunities during the day without having to spend all day in front of the computer. The best time for scalping is when the European and American markets are both open, or during the morning hours of the European market.
Advantages and Disadvantages of Scalping Strategy
1. Scalping involves fairly low risk as the losses are low.
2. Scalping opportunities are plentiful, throughout the day.
3. Scalping allows for diversity in markets, trading in several different markets at once.
4. Scalping can be profitable even if you trade only a small amount each day.
5. Over time, profits add up and can reach great value.
1. Scalping requires that a trader be very attentive and enter and exit trades rapidly.
2. In scalping emotions must be ignored as they can get in the way of making sensible, logical decisions.
3. A trader must be able to deal with a lot of pressure when using scalping strategy.
Which Brokers are recommended for Scalping?
The most important thing in scalping is that trades are executed very quickly as they often rely on just 1 minute time frames, so it is important to choose a broker who can execute trades in real time as not to miss the opportunity. It is also important to choose a broker who offers a low spread. Since scalping relies on opening and closing many trades over a short period of time, a high spread will leave very small profits for the trader and therefore will not be worth his while. When choosing a broker for scalping, look for a broker who can deal with short time frames efficiently and that is very competitive in offering a low spread.
A new technology offered by ECN Brokers allows for spreads starting at 0 pips. A small commission on both sides replaces the spread making this method more suitable for scalping. This can be accessed from the Broker Tallinex MT4 downloadable and mobile version.