Nowadays you can trade on Forex in many different ways. One of these methods, which is very popular nowadays, is scalping. This strategy is the opposite of swing trading, and it is often underestimated. The fundamental difference between these two strategies is that swing trading involves only a few trades for up to a few weeks, while scalping consists of several deals in a single trading day.
Scalpers do not take waiting positions, but quickly conclude transactions and close them immediately. Thus, scalping aimed at short-term trading, and, as mentioned above, the effectiveness of scalping is often underestimated.
The essence of scalping at Forex
Scalping consists of trading based on analysis of current asset rates and data available at the moment. The purpose of scalping is to make as many short term transactions as possible, each of which will bring small profits. Thus, scalping is the exact opposite of long term, position trading and by no means allows the position to be carried over to the next day.
As with other Forex trading strategies, scalping involves certain risks. Let's start with the fact that there is always the risk of giving too much importance to one particular transaction, which in principle contradicts the very purpose of scalping. Scalping is a constant move forward, to new trades, so long holding one single position, if it fails, can lead to regrettable consequences. It can be especially unpleasant when emotions show on the wrong time of the deal - there can be a "chain reaction", destroying the meaning of the entire strategy.
Brokers and experienced traders often recommend beginners to start with scalping, but to apply this strategy, first of all, you need a decent amount on the account, and beginners may not have it. At the same time, we can not say that a beginner can not be successful in scalping at all (this is not so rare), but the fact is that with a minimum account balance, high-frequency trading will not bring tangible results.
There is also the danger associated with sharp price jumps, which are incredibly hard-hitting the scalpers. For example, political news can cause abnormal volatility, especially if it concerns countries where the current political regime is unstable. In such periods, the price can travel a vast distance in the shortest possible time - say, 100 points - which would be akin to collapse for a scalper. It is recommended to set the stop-loss as close to the "entrance" as possible. Which in its turn also leads to an increased probability of losses.
Thus, it turns out that scalping carries considerable risks, and without the corresponding capital and risk-management technologies, it should not be applied.
Advantages of scalping at Forex
Scalping only makes sense when trading within the same trading day, which means that the risk of a transaction will not "replicate" within a few days or weeks.
Scalping is suitable for those who can only trade for a few hours per day or even less.
Finally, since scalping relies on speed, the growth of the trading balance can go much faster than with other trading strategies.
Shortcomings of scalping at Forex
Concentration is significant for the scalper, as it means doing the same thing all day long. It is difficult to achieve this level of attention, and sooner or later errors may still occur.
Scalping is based on making a profit from small market movements. Accordingly, all the most influential trends, on which other traders make a decent profit, as a rule, pass scalpers.
When making a large number of trades, there is a growing dependence on different costs, fees and spreads; in some cases, they may completely override potential trade profits.
Suitability of scalping for each trader
The question "how suitable is scalping for me?" has every reason to believe that this strategy is not for everyone. If you are interested in making deals for a long time and waiting, scalping is unlikely to bring you any joy. On the other hand, for those who want to make a profit here and now, this strategy will be just delightful.
Scalping may seem to be a straightforward way of trading on Forex, with the help of which you can make money on the financial market in a few minutes, but in fact, it is not so. Scalping does not tolerate mistakes, so it is best for those who are ready to keep the maximum concentration while working. At the same time, a scalper does not need to be present in the market around the clock. So there is some freedom of action.
So, scalping is not suitable for everyone, and if you are told otherwise, do not believe it. Scalper makes decisions lightning-fast and makes a profit from minimal price movements, so lovers of thorough and thoughtful analysis do not need scalping for sure. If you like to do everything fast, then perhaps this strategy is just for you!
Scalping is a strategy based on speed and trading volume, and it does not forgive errors. The essential qualities of a scalper are quick reaction and the ability to cope with difficulties in any situation. For those who are ready for any turn and can successfully concentrate on trading for a certain period, scalping can be the best trading option.