Scalping can be a risky and time consuming way to trade. It can also be incredibly rewarding if managed properly. This is not a method I’d recommend for new traders but if you have some experience and you are willing to take some risk, read on to learn some of the key factors to scalping for success.
Scalping is usually done in very short time frames of 1 to 5 minutes. It is popular because it is considered lower risk because the short time frames mean you aren’t as subject to the ups and downs of the market. Unfortunately the same reason that it is considered a lower risk, is the reason that it is high risk as well. As a scalper, you don’t get to use the indicators that can help you determine where a trade is going to go. A scalper can be caught unaware by a indicator that sends the market running the opposite way. This is a key reason why scalpers tend to have multiple small trades going so that any loss is offset by profits in other trades.
Being a scalper means being patient and willing to take on small gains. A lot of Forex traders are obsessed with making a big splash in the market. Scalping is all about making small trades that can eventually add up to huge profits. You won’t see a single trade for a scalper net huge profits but over the course of their trading day, they will have netted a nice profit.
When scalping, an understanding of leverage is even more crucial to your trades. A scalper is going to lose on a trade frequently but generally comes out ahead overall. If you are not keeping your trades consistent in size, an over leveraged trade can ruin your day in a heartbeat.
Scalping requires a strong trading plan just like any other trading strategy. Make sure you have estimated your risk prior to trading. Be sure to keep an eye on all trades and be ready to jump out of the market if things are not going your way. Remember that one loss generally isn’t a big deal in scalping but if you are seeing more losses than gains, it is time to get out.
Scalping is definitely a time sensitive way to trade and scalping strategies can change depending on the time of the market. Certain trading hours are very choppy and make for a great time to practice your skills. Trades that exploit small movements in price are highly effective during choppy time periods. There are highly volatile hours for trading that are a risky portion of the day. You can net some nice sized gains but you also run the risk for losses.
Before you start scalping make sure that your broker is ok with this trading method. Some brokers explicitly state that they do not allow scalping and others will discourage it. When choosing a broker make sure that they offer low spreads. A scalper will open and close hundreds of positions in a day and a high spread can destroy your profits.
Make sure that you manage your trade from start to finish. Scalping can be complicated as you are holding multiple positions at any given time. You must keep control of all of them and make sure that you close them at the appropriate times. Do not let a trade get away from you or you will find yourself losing a lot of money.
Scalping is a very difficult trading style to master. Trying to manage multiple trades, estimating your risk vs the rewards, and keeping your losses under control is a serious balancing act that is not for the weak of heart. However, scalping is worth the effort as you can make some serious profits if you are willing to put in the work.
