This article looks at scalping forex trading systems and how you should make use of it.
Scalping forex trading systems involve targeting small profits by entering and exiting several trades during the period of one trading day. This is quite similar to day trading where a trader opens and closes a position during a single trading period. The main difference between the two systems is that day traders only enter and leave a couple of trades in a trading day, compared to scalpers who go in and out of multiple trades during one trading session, earning small profits. Day traders make use of charts linked to time periods of 5 and 30 minutes, whereas scalpers use tick and one minute charts. Scalpers experience their most profitable trades during the release times of economic data or any other forex news.
The main aim of scalping is to make small profits several times a day. If the bulk of the trades are successful and profitable, the use of increased leverage ratios and the small amount of pips gained several times a day could add up to a substantial amount. When you are considering scalping as a forex trading strategy, you should consider that in the event you are trading standard lots, each pip will be worth $10 to you. In the event that your profit is based on five pips, the monetary value of those pips would be $50 for each trade. The number of trades you enter could be as high as ten per day and this would provide you with a profit of about $500 each day of trading.
The Personality of the Scalper
This method will not suit every trader. You need to have a certain personality for this type of intense trading. You will be based in front of your computer screen for most of the day, while concentrating on all the movements in the market. If your intention is to scalp smaller price movements, you have to keep your eye on the market at all times. If you are a personality type that needs to analyse all decisions, this method of trading will not suit you. You have to be able to make quick decisions.
Pros and Cons of Scalping Forex Trading Systems
Scalping is an extremely fast-paced, intense trading method. If you are excited about the intensity and action of full focus on one-minute charts, you may have found the most suitable trading strategy for your personality type. If quick losses do not scare you and you have fast reaction times, this may well be the perfect trading method for you. The losses you have to endure will normally not be more than between three and five pips per trade.
What do you Need?
The first thing you need is suitable computing equipment and a stable, fast internet connection. The trading platform your forex broker offers you should be fast and stable. It needs to be able to cope with this fast method of selling and buying. You must ensure that the trading platform you intend using has a quick access ‘sell’ and ‘buy’ button which will allow you to enter and exit trades with one click of your mouse.
This fast method of trading requires currency pairs with high liquidity. The major currencies normally fall into this category. You should determine the currency pairs that are most liquid during the trading sessions you intend trading. Although the market is open all day and night, the volumes are not constant throughout the trading period.