Primarily there are two trading styles in forex trading: Short term and long term. Short term trading is done when positions are opened and closed on an intraday basis. Long term trading positions may span a few weeks or a few months.

Scalping is one of the methods to trade forex on a short term basis. It is a trading style where small price gaps created by bid/ask spreads are exploited. It normally involves opening or closing a position within a few minutes or even second.

Scalping is based on the fact that most of the time the market is ranging. Ranging means there is no significant price volatility. A scalper tries to make 2-5 pips per trade.

The best time for scalping is when the market is consolidating and ranging like when between the close of the US market and the open of the European markets, forex markets tend to range for hours without much movement. This is the time when scalpers like to trade.

But scalpers have to make more pips per trade than the pip spread offered by brokers in order to break even. For example if the broker is giving a 4 pips spread to you than you will have to make more than 4 pips per trade to start making profits. Dont forget the spread is your cost of trading.

In order to become successful at scalping you need thorough understanding of technical analysis. You should have an idea of how to determine over/under brought, support and resistance levels, trendlines, trading channels etc before entering into a trade.

Forex brokers dont like scalpers. Many will try to ban you on one pretext or another if you are using scalping as your trading strategy. So, first check with your broker before adopting this style of trading.

Since scalping means a few pips per trade, in order to make 20-50 pips per day, you will have to trade many times. Dont forget these 20-50 pips are after you have subtracted the trading cost.

Since scalping involves making a few pips per trade, you will have to use high leverage in order for those pips to make a decent profit for you. What about leverage?

Leverage is dangerous. It is a double edged sword that cuts both ways. Leverage helps you if market favors you but it will destroy you if the market does not favor you. So beware of using too much leverage while trading.

Tags: Gambling

Share This