Scalping is an area of Forex trading that always appeals to new traders because of the potential to make big profits, quickly. However, with the high level of reward also comes a high level of risk, so it is super important that you take the time to properly understand scalping before applying it to live markets. As ever we are going to take things slow and steady and make sure that we cover everything so that you are really comfortable.
So, first of all then, what is scalping?
Instead of referring to a specific strategy, scalping refers more to a way of approaching the markets where the trader looks to exit trades as quickly as possible with the intention of capturing only very, very small moves in price. So, where a swing trader on the higher time frames will look to take a trade lasting anywhere between a day and several weeks, looking to capture percentage moves in price, a scalper will look to hold a position for anywhere from a few seconds to a few minutes looking to capture anywhere between 2 – 20 pips usually.
Objectives of Scalping
As scalpers are only targeting such small pip gains, they typically trade with a higher position size than a swing trader would, to make the trade more meaningful. This increased position sizing brings the potential for big profits, quickly, unless, traders are careful they can also expose themselves to large risks. This is why it is extremely important for traders to focus on risk management when trading scalping methods. Key among these is always trading with a stop.
As scalpers typically trade with relatively large position sizes, trading without a stop can quickly see losing positions escalate into unnecessarily large losses. However, if traders always apply a uniformed risk profile and make sure to trade with a stop loss, this creates plenty of room for achieving large trading profits without taking unnecessary risks.
Time Requirements For Scalping
Due to the nature of scalping, it is only suitable for those traders who have plenty of free time to focus on the markets as it can be an intense and time-consuming task. Despite the fact that trades are only held for very short durations, scalpers typically spend a great deal of time watching the markets waiting for trades to setup.
Because they are focusing on the lower time frames where the volatility is more pronounced, scalping is a task which requires a high level of focus. However, for traders who have the necessary time and are able to develop the skills and the discipline required, it can be an extremely rewarding way to approach the market.
The beauty of scalping is that it allows traders to operate opportunistically in the market, placing trades based on only very short term reactions, instead of a broader directional view. Scalpers typically use strategies that are based purely on technicals while longer term traders might combine technical analysis with fundamental inputs to arrive at a bias for a certain currency pair.
Due to the very short term nature of scalping and the fact that traders are only looking to achieve very small pip targets per trade, it is incredibly important for traders to find a good broker to deal with as unnecessarily wide spreads, as well as slippage, can have a damaging impact on a scalper’s results over the long term. Fortunately, Orbex offers very tight spreads and traders rarely suffer any slippage, which makes us a perfect Broker for traders looking to operate a scalping approach.
Hopefully, now you have a clearer understanding of what scalping is as well as the benefits of this form of trading. To learn about specific scalping strategies that you can apply, join us for a live webinar on March 29th where James Harte will take a detailed look at scalping.