Forex Scalping: Good or Bad?
Description: An unbiased look at short-term trades.
Scalping is one of the most talked-about Forex trading methods out there. It is so talked-about, in fact, that even brokers now have clauses related to it in their terms and conditions. In this article, we will look at the advantages and disadvantages of scalping the Forex market.
It offers instant gratification
Most scalping trades last for as little as 2 minutes, with the longest ones lasting for 30 minutes. This is because the trader is typically looking for 10-20 pips profit, most times. When this happens, there is this sense of satisfaction that engulfs the trader as he looks at the profit made in such a little time.
Scalping allows traders use bigger trade sizes comfortably
Since most scalping trades are usually for just a few pips, the trader can use bigger trade sizes knowing that he or she can quickly get out of the trade if things go wrong, but could potentially make decent amount of money if the trade goes according to plan.
It significantly reduces risk levels
Most scalping strategies are based on the 1-minute and 5-minutes charts and, as such, the stop loss level will be a lot lower than what it would be on an hourly chart, for instance, thereby reducing the risk on the trade.
Scalping helps traders build their account balance quickly
Most good scalper traders grow their accounts by as much as 30% in a single day. Over the course of the month, this works out to over 500% profit on initial investment.
It is a high-risk method of trading
Regardless of the fact that this method of trading allows traders to take low risk trades and use big position sizes, it is still very risky. This may sound like a self-contradictory statement but it is not. Imagine using a big position size for a scalping trade only for the trade to turn against you and hit your stop loss. If this happens three times on the trot (which is very possible) you could be left staring at an account balance that has been halved! This is even discounting occasions whereby scalping trades were unknowingly taken close to the release time of strong impact news. The reactions to the news alone could blow out the account entirely.
It requires huge amount of screen time
For anyone to make decent amount of money scalping, he or she may have to stay as long as 6 hours a day waiting for signals and taking them. This makes it energy-sapping for most people, and also makes it impossible for individuals that aren’t trading full-time to trade using this method.
Most brokers do not allow scalping
Most brokers today now have rules embedded in their terms and conditions where they state clearly that they do not allow scalping. Most of them make it in such a way that your account gets blacklisted if they notice you taking trades and closing them in as little as 5 minutes or less. Some of them will send you a warning, after which your account will be closed and whatever funds you have left returned to you.
It requires strong level of discipline to work
It takes discipline to stick to a scalping strategy even after losing the first three trades of the day. It also takes discipline to effectively stick to keeping awake and scouting for signals!