Forex scalping is based on the concept of trading currencies using real-time analysis so as to acquire profitable returns even from small price changes. To become a scalper, the trader should have precise exit strategy as one huge loss can easily eliminate several small profits that you might have obtained. Hence, a combination of accurate tools, reliable broker and most importantly the stamina to survive is vital for this style of trading.
What Are The Different Types of Scalping?
The scalping system has been categorized into three different styles which are:
Market Making: This is where a trader (or algorithmic / market making machine) capitalizes on the spreads by buying lower (by creating bid prices) and selling higher (by creating ask prices). However, this strategy is not available for small retail traders.
Manual Buy & Sell FX Trading: The manual buy & sell is a traditional style in which the trader purchases large volume of currencies and then sells for gain on small price movement. Basically, you enter with a large volume position and then wait for a change in move. This approach demands for high liquidity so that entering and exiting the market turn out to be easy and fast.
Automated FX Trading: The third style is based on using forex algorithms, high frequency trading systems or scalping expert advisors. Nowadays it is possible to simply code your own automated trading strategy - or expert advisor - that is how automated trading strategies are called in the MetaTrader 4 trading platform - by using the MQL language (programming language of the MetaTrader 4). When using more advanced trading platforms, higher coding skills are needed (especially in case of creating forex algorithms or high frequency trading systems).
Advantages of Forex Scalping Strategies
Scalping has remained to be one of the most popular techniques due to its wide range of advantages and some of them include
you will no longer have to wait for hours to spot a potential entry signal,
you will not have to make any sort analysis for predicting the market,
you can still maximize your profits with position trading,
you can close your positions, take the profits and leave by the end of the day without having to worry about the upcoming movements.
Factors That Influence The Effectiveness of Forex Scalping
There are four elements that can have a strong influence over the effectiveness of a scalper's strategy
Volatility: Scalpers have the ability to improve their profits from a silent or stable market. However, usually the higher volatility is there the higher profits can scalping strategies achieve.
Liquidity: The liquidity seen in the market can affect scalping to a dramatic extent. While, there are scalpers who trade only in low liquid markets (using higher ask-bid spreads), but commonly a high liquid market is regarded to be the best conditions for scalping systems, as moving in and out of the market is much simpler due to the large impact.
Timeframe: Since scalpers have to work in a short period of time, they tend to search for profits which are so small that they may not be noticed in a one-minute chart.
RiskManagement: At last, scalpers do place hundreds of trades in one day with an aim to earn as much as they can, but in this process they might lose in some trades too. This is why it is crucial to have a proper risk management strategy ensuring the loss never accumulates.
Is Forex Scalping Right For You?
Scalpers are not only high frequency traders rather they look upon momentum in trade session and then work according to an appropriate plan. This makes it a short-term method, essentially used by day traders.
They often implement technical strategies for entering through the short-term support and resistance level and consider the economic calendar to understand when the volatility of the market would increase.
If you will decide to scalp forex manually, then it will require a very specific mindset and psychology to succeed in the long-term. However, using automated forex systems could be a wise way how to compete with other market participants effectively even on the smallest market moves basis.
High Risk Warning: Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.
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