Scalping for quick small profits is a very popular Forex trading strategy, requiring immense discipline and focus. True Forex scalpers make between 10 and 100 trades each day. If a trade goes against them they get out of quickly rather than holding on and hoping that it will turn around. A Forex scalping system goal is to make 5-15 pips per trade.
The aim of a Forex scalper is to buy or sell a pair of currency at the bid or ask price and then exit the trade quickly when it's in profit by a few pips. Using this strategy of taking a small amount of pips out of the market at a time, can quickly compound into big gains as long as a strict exit strategy is used to prevent losing trades absorbing all profits.
Generally Forex scalpers use the 1 min, 5 min and hourly charts to locate trades that can make them a small profit. Because the Forex scalper is only aiming to make a few pips per trade it is essential to use a broker with low spreads and instant execution of trades.
A few things that can improve your chances of being successful as a Forex scalper are:
- Ensure that you know when news relevant to your currency pair will be released. - Write down the previous days Open, High, Low and Close. - Learn some basic candlestick patterns so you can identify them when they occur. - Draw in major trend lines, pivot points and support and resistance on both the daily and hourly charts of your currency pair. - Determine the major direction for the day, Bullish or Bearish, trading in the longer term direction will help trades to be more successful. - Move your stop to break even you are 10 pips in profit. - If the trade is taking to long to become profitable or you don't feel comfortable with it, get out.
An advantage of Forex scalping is that the small targets of 5-15 pips are easier to accomplish. One of the difficulties Forex traders have is when the trend reverses during a trade, because Forex scalper's get in and out of the market quickly this is less likely to happen. Many people have been successful with Forex scalping, so there is proof that it can be a profitable Forex trading method. A disadvantage is that the risk to reward ratio is lower than other Forex trading methods. As the gain per trade is so low, one losing trade can wipe out all the gains for a day. This means it is extremely important to set and move a stop loss.
There are a few traps that new Forex traders fall into when they begin Forex scalping. They may become hooked on making random profits, especially if they are initially successful. This can result in the trader taking more risky trades and not sticking to their plan. A second trap is trying to make up for the losses of yesterday. New traders often think about how they can win back the money they lost a previous day, this tends to cloud their judgment and may result in emotional trades that are doomed for failure.
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