Identifying your trading style and technique is a lot like molding your personal wardrobe. Some dress for utility and performance; others tend to keep a low profile by selecting comfort and convenience compared to those who enjoy staying on top of the latest trends.
When it comes to selecting a trading strategy, following your natural personality traits is key. In this case, we’re talking about the world of scalping. Much like fashion trends, scalping is always in a state of change.
What is Scalping?
Scalping is a method of trading that involves entering and exiting trade positions multiple times on a regular basis for small profits. The name of the game is to open and close a large number of trades in a day with the ultimate goal of turning small gains into a pool of profits.
What are the pros & cons?
- Positions are typically held for a short period of time making for a swift transaction. It’s clean and simple allowing a lower chance for the market to reverse.
- Scalping is a simple entry strategy for new investors, as it requires little Forex knowledge due to the positions requiring less analysis and shorter time frames between 5-15 minutes.
- Investors can utilize indicators to seek out movements on the fly.
- Pips or returns gained are typically smaller as there is less movement.
- There are certain brokers that do not allow scalping on their platforms, so do check before opting into this strategy.
- This strategy is one that requires a compilation of setups in a day to achieve financial goals.
What do I need to know to get started?
While intimidating at the start, getting started in the world of scalp trading is fairly simple. Unlike technical trading strategies, this method does not require technical analysis or formal trading of the market.
If you have the time to keep close watch on the market as well as open and close multiple trades in a day, you’ll be set. This style of trading is more reliant on personality and availability rather than having extensive knowledge of the market.
What do scalpers look to trade?
When it comes to selecting multiple trades in a day, scalp traders are looking for maximum opportunity in the shortest time. That means they look to invest in the most liquid markets. These markets typically include the major currencies including the USD, EUR, JPY and their currency pairs.
The Forex market is open 24 hours a day, though some currencies are more active during certain timeframes. As a scalp trader, it’s the best opportunity to capitalize on movement during windows like the London market open, New York open as well as their closing sessions.
To ensure there is coverage on the execution of short term trades, scalpers typically utilize short-term charts or charts by the minute.
What are the do’s and don’ts of scalping?
- Keep an eye on liquid markets such as the open and close of top markets.
- Search for major currency pairs as there is a higher chance of movement.
- Be sure you’re up for high-speed trading and its demands.
- Scalping trades can fly by quickly, so be sure to document and log your trades
- Stay away from trading when under pressure, and do not base trades on emotions or gut feelings.
- If you take a loss, try to hold back from going right back into the market for a revenge trade.
- Don’t exhaust yourself and the market by staying in too long.
Scalping is a fast-paced method of trading, and isn’t for everyone but can be a solid strategy for beginners and investors that have time in the day to look over many open trades. If you like staying on your toes, and are looking for action in the market —this strategy is worth testing out.