Forex Scalping: The Basics
Forex scalping is a technique used by many forex traders with the aim of taking small profits by taking advantages of retracements and momentum in prices of currency pairs. A forex scalping strategy can be profitable if applied with strict discipline and proper capital management.
Forex scalping strategies rely on the price action of currency pairs. The aim of any forex scalping strategy is to enter and exit a trade for a profit of around 5-15 pips within a very short amount if time. With forex scalping, a forex trader usually rely on a set of indicators to guide him on when to enter and exit the market. Using the shorter timeframes like the 1M, 5M, 15M and even the H1 charts, forex scalpers do not aim to capture the whole length of the movement during a rally or a correction. But instead, scalpers just aim to capture a small part of that movement once they have already identified the prevailing trend.
Is Forex Scalping Profitable?
Since forex scalping aims small profits of 5-20 pips per trade, the key for most scalper to make this system extremely profitable is to be able to make trades as many times as the market would allow them to. Entering and exiting the market with small profits many times in a particular trading session allows forex scalpers to build up on their earnings slowly but surely.
However, it must be noted that for forex scalping to work effectively, one must be able to manage the risks involved with this type of a trading technique. A forex scalping strategy can be quite a low risk strategy if performed correctly. Since a forex scalper aims for small profits with every trade that he makes, the same should be applied to the risk that he takes with each of those trades. This simply means that when forex scalping, the downside risk should likewise be kept in a conservatively tight range. The same principles of proper capital management should be applied where the stoploss level, at its maximum, should be equivalent to the target profit. This would ensure that the small gains accumulated would not be wiped out in a single wrong trade were the loss is just allowed to balloon.
Important Factors To Consider With a Forex Scalping Strategy
It must be noted that not all currency pairs behave the same. When applying a forex scalping strategy, be sure to factor in the volatility and tendencies of the currency pair that you are using. For example, a 50-pip move in the opposite direction with the GBP-JPY pair cannot be considered the same as a 50-pip move in the EUR-USD pair.
Another important factor to consider is the trading time. Using a forex scalping strategy for the EUR-GBP pair during the London market is not the same when applied during the Asian markets. Different geographical markets have different effects on some currencies. As a forex scalper, one must be aware of how these factors affect a forex scalping strategy when applied to different currency pairs.
