What is Forex Scalping Strategy?
Forex scalping strategy is a tactic in which positions are held open just for a very brief period of time, in order to pick up a lot of tiny profits. This can be a extremely profitable way of trading the forex.
How long the position is kept open differs from a number of seconds to 2 minutes maximum. If kept open longer it's no longer referred to as scalping, but intra-day trading. The aimed profit per trade generally lies between 1 and 5 pips net (i.e. what is still left after paying the spread). It's probable to set up a scalping strategy that targets earnings between 5 and 15 pips net, but the position then frequently needs to be held open for longer than 2 minutes.
Forex Scalping Strategy is NOT A Good Strategy For Beginners
Scalping is usually done with high leverage, due to the fact it only pays to pursue profits of just a couple of pips when those pips can be worth something. Dealing with Micro Lots for example (where 1 pip is worth about 10 cents) it wouldn't be very profitable to develop a strategy where the regular net profit per trade is 1 pip. However, with Standard Lots, where pips are $10 each, you could earn a nice living at 1 pip a minute.
One of the biggest faults beginning traders make is trying to optimize their profits by using leverage in a manner that ignores all reliable risk management. (picture depositing $200 and then trading Mini Lots, 1 pip = $1, using 500:1 leverage). This is a pretty much certain road to going bust as a trader. Since scalping only gets exciting when trading bigger lot sizes, starting traders with beginner size trading capitals could instantly use up their bankroll.
Another reason this strategy is not really ideal for beginning traders is that it demands a lot of self-control and stress management to carry out correctly. A single emotional trade can obliterate the carefully accrued profits of a whole day, and a trader going on tilt could even lose days worth of profits. Yes, you can set stop losses to safeguard yourself somewhat against losing excessively on a single trade, but most scalpers can't stand stops, because it takes too much time to set them. Profit targets aren't widely used either. Apart from the time it requires to set them they also keep the scalper from profiting on the occasional spike which can push the price to double digit pip profits in a short ride. Seasoned scalpers are as a result using either an automatic system or a quick, meticulous eye and a stable hand on the mouse.
How Scalping Works
First, you will need to have a working strategy. The most essential part of every forex scalping strategy is risk management. A rewarding scalping strategy risks only a little part of the total trading funds and quickly protects small profits.
Successful scalping suggests risking 1 or 2 percent of your trading capital for the most part, never more. Working with small profit margins simply will not allow room for big losses.
The profitable scalper builds up a solid trading strategy that he will not vary from. This is one of the factors why scalping on the forex is more and more done with the help of computerized systems (a.k.a forex bots, or expert advisors – EA's). Automated trading effectively removes human emotions and its unavoidable missteps.
Does this suggest that forex bots will help make you rich as a forex scalper? Not always of course, because you will still have to educate this automated method what parameters it should stick to, and to be capable of doing that you will have to know what you're doing.
Is Forex Scalping Strategy The Holy Grail?
No. There is no holy grail of trading, basically. The sooner you understand this, the sooner you can start creating your own successful trading strategy. But before you commence working on a strategy depending on scalping, you should get familiar yourself thoroughly with peripherals like money management, risk management and trading discipline.
Although scalping is often time a slayer of beginners, it can be very useful for experienced traders who are ready to devote the time and effort needed to build a solid system.
Suggestion if You Decide to Give Forex Scalping Strategy a Try
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