It’s a case of stating the obvious, but there are countless ways for any investor to approach the forex market these days. Trading styles take on all different shapes and sizes. For those new to forex trading—and even those with forex trading experience—scalping is a method that you have likely been pushed towards. Often unheralded, it represents the opposite of the highly popularised swing trading. While swing trading will see you placing a couple of positions every few weeks, scalping is the opposite, as it prioritises making multiple moves over the course of a day.
Scalpers don’t tend to hang around, entering and exiting the market frequently during any trading session. Scalping might be a common forex trading strategy primarily for those thinking short-term, but it can be argued that it’s actually underestimated in its effectiveness.
What is Forex Scalping?
To give you a basic definition, scalping involves trading currency pairs based upon real-time analysis. The entire purpose of scalping is to bring short positions to the fore, as traders will look to buy and sell countless times over the course of a day, attempting to generate small profits along the way. Scalping effectively presents the opposite of any long-term, position-driven trading strategy, as it avoids carrying any position overnight as a fast and hard rule. Remember, with scalping it’s a case of little and often, rather than standing by an option over the long haul.
What are the Risks?
Scalping isn’t unlike any other forex trading strategy in the sense that it has its risks. For starters, scalpers have a tendency to place too much emphasis on a single trade, which at times defeats the purpose of scalping. The whole premise of scalping is to move quickly, so the potential impact that a bad reaction can have on a single trade can prove disastrous. This can be magnified should emotion get tangled up in a poorly timed trade, as it can trigger a domino effect that disrupts the entire strategy.
Scalping is often pushed onto novice traders by questionable brokers and more experienced traders. The reality is that scalping requires a moderately sized account to be effective, so novice traders that don’t have this are often walking into the unknown. This isn’t to say that novice traders can’t find success while scalping—that can certainly happen—but capital of a moderate level is needed, or the small and often approach will deliver minimal returns at best.
Another danger that often presents itself while scalping is damage caused by wild price swings. Economic news releases—especially from countries that have known political instability—can send ripples and shockwaves throughout the market, triggering increased volatility. During this time, the price of active pairs can shift over 100 pips, disrupting any scalpers’ trading efforts. It makes setting an accurate stop loss near impossible, essentially leaving them in a weakened position.
Scalping is sold as a novice-friendly method, but that doesn’t quite tell the whole story. This approach to the market can be inherently risky, especially if it’s not approached with an appropriate starting capital and risk management measures in place.
Advantages of Forex Scalping
- Scalpers can exclusively work within a set session every day, as no positions are carried overnight. This also means that no risk is ever carried forward day-to-day.
- Trading short sessions are also highly possible, so if a trader wishes to do so they can choose to actively trade for just a few hours a day.
- Scalping places heavy emphasis on speed, which means it can be used to grow a trading account balance faster than practically any other trading strategy.
Disadvantages of Forex Scalping
- Concentration is absolutely pivotal when scalping, as it is effectively the act of doing the same thing multiple times during any single day. This consistent level of concentration will be difficult for some to maintain, eventually leading to problems.
- Scalping isn’t the most headline-worthy way of trading forex, as scalpers probably won’t be able to ride the biggest market moves. Many traders make the link between big moves and big profits, so this can be a difficult psychological hurdle to jump.
- Cost increases can wreak havoc on any scalper’s bottom line, as wide spreads, slippage, and a pip shifts all have the power to cut deep.
Is Forex Scalping Right for You?
This is figuratively the million-dollar question, as forex scalping isn’t going to be for everyone. Those who like to operate with a longer stance towards the forex market—through a position trading approach, perhaps—aren’t likely to get much joy out of scalping. For those that find the idea of holding lengthy positions uninspiring, however, forex scalping will surely hold a lot more interest.
Scalping can appear basic and almost effortless on the surface, even if the reality is very different. The illusion is that anyone can turn over a full day’s profits in mere minutes, but that is seldom ever the case. When scalping, there is minimal room for error, which means it is perfect for those who are able to exhibit high levels of concentration in short bursts. Scalpers won’t be active around the clock, so if you have the ability to deliver concentrated focus, this trading strategy could be the right fit.
Scalping won’t be for everyone, so nobody should be foolish enough to buy into the myth that states otherwise. Quick entries, quick exits, and quick profits are the calling card of any scalper, so if overanalyzing and overthinking are at the core of your trading personality, then this approach probably won’t be for you. However, if you find that you meet the description of scalper, it’s certainly a methodology that is worth exploring.
Scalping is fast paced, volume-trading orientated, and—at times—unforgiving. It presents a way of trading that can be reactionary and will often call on a trader to roll with the punches. If you meet the criteria and have the concentration levels that can allow you to trade in short, focused bursts, then scalping could be the missing link in your forex trading efforts.
The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.