What is Forex Scalping?
There are many different trading strategies and forex scalping is one of them. Of course, many new traders wonder what is forex scalping. This is a short-term trading strategy where you make multiple small profits. This strategy is classed as a day trading strategy because of the short timeframe of the trades. It is important that you know the basis of this strategy and the different ways it can be done.
What is Forex Scalping Basics?
There are three main points which make up the basis of forex scalping:
- The first is that you lessen your risks by being exposed to the market for a short space of time. The brief exposure of this strategy does not allow much time for the trend to turn against you and large losses to be realised.
- It is easier to make many small profits than a few large ones. The forex market is constantly moving and this means that it is easier to make a small, quick profit than a larger longer term one.
- Small movements happen more often than larger ones. The forex market spends 80% of the time ranging which means small movements. This is ideal to make a small profit off the frequent small movements of both the trending and ranging market.
The primary scalper is the trader that uses this strategy as their primary way of trading. These traders will complete a large number of short-term trades in a day. The number can vary from 10 to hundreds depending on the market and the experience of the trader. These traders use one-minute charts to find their entry and exit points. It is important that these traders have brokers who can quickly execute their trades and offer tight spreads.
The Supplementary Scalper
The supplementary scalper does not see this trading strategy as a viable full time trading strategy. These traders only use scalping during certain times. These times include when the market is ranging or when the market is too volatile for a long-term trade to be profitable. Supplementary scalpers are usually long term traders or trend traders who need another strategy during market conditions that do not suit their primary style.
The Fundamental Scalper
Most traders think that scalping is something that can only be done by technical traders. This is not true as there are traders who scalp the market fundamentally. These traders use the short-term trends created by the fundamental news releases to make a profit. These traders do not only trade around the high-impact news releases like many fundamental traders. Low impact news can also have an effect on the market that a scalper can use to make a profit.
Risks of Scalping
There are no trading strategies that are not without their risks and many people find that scalping has too many risks. If you are scalping fundamentally then you are open to greater risks than the technical scalper. Fundamental scalping is risky because you do not know how the market will react to any news. Other risks of scalping include the leverage that many traders use to make the small number of pips they accumulate worthwhile.