Scalping for quick small profits is a increasingly popular Forex trading strategy, requiring extreme discipline and focus. True Forex scalpers make between 10 and 100 trades every day. If a trade turns against them they get out of quickly rather than holding on and hoping that it will turn around. A Forex scalping system goal is to make 5-15 pips per trade.
The aim of a Forex scalper is to buy or short a pair of currency at the bid or ask price and then get out of the trade quickly when they are in profit by a few pips. Using this strategy of taking a small amount of pips from the market at a time, can easily compound into huge gains as long as a strict exit strategy is used to prevent losing trades absorbing all profits.
Usually Forex scalpers use the 1 min, 5 min and hourly charts to find trades that can earn them a small profit. Because the Forex scalper is only aiming to make a few pips per trade it is essential to use a broker with low spreads and instant execution of trades.
A few things that can improve your chances of being profitable as a Forex scalper are:
- Ensure that you know when news relevant to your currency pair will be released.
- Record the previous days Open, High, Low and Close.
- Learn some basic candlestick patterns so you can recognize them when they occur.
- Draw in major trend lines, pivot points and support and resistance on both the daily and hourly charts of your currency pair.
- Determine the major direction for the day, Bullish or Bearish, trading in the longer term direction will gives trades more chance of being successful.
- Move your stop to break even you are 10 pips in profit.
- If the trade is taking to long to go in your direction or you don't feel comfortable with it, get out.
An advantage of Forex scalping is that the small targets of 5-15 pips are easier to accomplish. One of the difficulties Forex traders have is when the trend reverses during a trade, because Forex scalper's are in trades for only a short period of time this is not as likely to occur. Many traders have been profitable with Forex scalping, so there is proof that it can be a successful Forex trading method. A disadvantage is that the risk to reward ratio can be very low. As the profit per trade is so low, one bad trade can wipe out all the gains for a day. This means it is especially important to set and move a stop loss.
There are a couple of traps that new Forex traders fall into when they start Forex scalping. They may become addicted to making random profits, especially if they are initially profitable. This can result in the trader taking increasingly risky trades and failing to stick to their plan. A second trap is trying to make up for the losses of yesterday. New traders often think about how they can make back the money they lost a previous day, this can cloud their judgment and can result in emotional trades that are doomed for failure.
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