What is scalping?
Scalping is one of the main forex trading strategies. Its main characteristic is the super short time period between the opening and closing of a trade.
It is like the thrillers that are full of action and keep you on the edge of your seat the whole time.
It's exciting, fast-paced, and mind-rattling, all at once. Love it or hate it, nobody can say scalping isn't exciting!
The technique the forex scalping strategy uses is based on grabbing small amounts of pips as many times as possible throughout the busiest and most volatile trading sessions of the day.
Scalpers only hold onto their trades a few seconds, or at most a few minutes.
Fun Fact: The name 'Scalping' is derived from the way its goals are achieved. Traders can literally place up to a few hundred trades in a single day trying to "scalp" lots of small profits from a huge number of trades.
Because forex scalping requires the trader to be present and looking at the charts basically during their whole trading session, it's best suited for people that can dedicate hours of undivided attention to forex trading. Ideally throughout the most volatile times in the forex markets.
Not everyone can handle such a fast-paced and demanding trading approach and therefore it's completely understandable forex scalping isn't for everyone.
Scalping is best suited for forex traders looking to make a big overall profit from loads of small traders, rather than traders looking to catch big wins in the markets every single time they trade.
We've put together a quick chart below that outlines the most desired characteristics of a scalper as well as characteristics for traders that should probably avoid scalping.
You might be a forex scalper if:
- You work well under pressure and like a fast-paced environment.
- You are a fast thinker with fast fingers.
- You are impatient and don't want to wait for long trades.
- You get easily stressed in a fast-paced environment.
- You like to take your time to analyse the overall market before placing a trade.
- You'd rather place fewer trades with higher profit gains.
How does scalping work?
Forex scalping is based on buying and selling forex currencies while profiting from small, fast moves. Scalping forex traders often target as little as 10 pips for their profit targets.
In order to profit from such small market moves, forex scalping requires the trader to enter the market with greater lot size than they would let's say a swing trade with a target of multiple hundred pips. Scalpers also maximise their profits by simply opening a large volume of trades per day.
In order to make a scalping strategy work in the forex markets, the traded pair must be volatile, meaning that it must provide enough movement for the scalper to take advantage of.
Here are some of the most popular currency pairs scalpers like to execute their forex scalping strategies on.
Forex scalping tools
A forex scalping strategy can either be manual, in which case the trader executes the entry and exit manually, or automated, where the trader takes advantage of a predetermined set of rules coded into a scalping Expert Advisor that then executes the trades automatically.
There are obvious benefits to using an automated system.
Traders don't have to sit in front of their screens to execute their forex scalping strategy for once. They don't have to manually scan all the pairs and look for the correct signals to enter the markets. And last but not least, it takes away the human error factor, where emotional decisions can affect the trader's bottom line.
On the other hand, manual trading can benefit from judgement calls, where trade is left open for longer than originally planned in order to extract larger amounts of profits from the markets.
Is scalping a viable strategy?
It's safe to say that forex scalping isn't for everyone.
However, with the right mindset and determination, it can definitely be a viable strategy.
Thanks to its low entry barriers, it's more suitable for novice retail traders than other more complex strategies that require more knowledge of the markets.
With proper discipline and a predetermined set of rules, forex scalping can certainly be a profitable strategy.
Let's take a closer look at some of the pros and cons of forex scalping strategies.
- Scalping requires less market knowledge to start
- Forex scalping is engaging and entertaining
- The liquidity of the market means trades can be entered and exited easily
- Trades are held for short periods of time, minimising losses
- Forex scalping can be risky due to market volatility
- The small profit from each trade can make it seem like the account is not growing fast
- TForex scalping requires a lot of screen time
- Leverage can increase gains, but also losses