FOREX Scalping system involves the opening and closing of a position within a short duration of time, usually within few seconds to 5 minutes. This can be a very useful way of scooping profits from the markets but skill is also a paramount factor when doing this, like every other strategy used in trading the markets. Usually traders who use the scalping model don’t aim much pips when doing this, usually 3-10pips per transaction except during volatile times in the market like during a high impact news release or a breaking news announcement, whereby 15-40pips can be made within milliseconds.
Like every other strategy in FOEX, there are advantages and disadvantages attached to scalping the FOREX market which I will be outlining towards the end of this article. It is very important to keep in mind that the trading volume has a big impact on the profit, as well as on the loss when scalping. Usually, traders that prefer this strategy are inclined to accumulate profit from several quick transactions. I personally don’t recommend scalping as a trading method; most traders using this method feel they can beat the market. Personally I haven’t heard of a legend trading the FOREX market with a scalping system.
During my early years of trading, I remember the first strategy I used to make money was the scalping system whereby I made use of high leverage and big lots size to aim just 3pips profit per deal without a stop loss. I grew my account tremendously from 317USD to 1,400USD within six trading days. I felt cool and said to myself “I have surely conquered the FOREX market”. On my seventh trading day, I crashed my account within an hour. It was very easy for my account to liquidate because I wasn’t using a stop loss.
You see even if you decide to scalp the market, I would recommend a use of stop loss no matter how wonderful your scalping strategy is performing. But one thing that keeps me on the side line is that how many pips you want to use as your stop loss. The FOREX market is too dynamic and volatile that it can clear a 20pips stop loss within 5-10minutes. So when scalping, you need accurate timing to go in and out of the market because if you get stuck in a trade, then you are in for an emotional war with yourself and the market.
If you want to scalp, you can’t just pick an arbitrary direction and put on a large trade. That is what we like to call the trade and pray, and if you’re doing it, it’s only a matter of time before you end up emptying your trading account. There is a saying that says “You can try to scalp the FOREX market, but eventually it will scalp you.” Scalping seems fun when you’re winning, but as soon as you start losing, it’s not fun anymore. We want to feel smarter than the market. The truth is that the market is just the market; all we can do is following its lead. There really isn’t a “beat the market” method. Well if anyone prefers the scalping method of trading, here are criterion, advantages and disadvantages using such system to approach the market.
SCALPING REQUIREMENTS INCLUDES:
• Price spreads and commissions to be as low as possible in order to reduce the cost of doing business to a realistic proportion of turnover.
• Data provision and execution must be fast.
• Adequate liquidity and a sufficiently large capital base in order to make the small targets and time spent monetarily worthwhile.
ADVANTAGES OF SCALPING:
• Very effective method of using capital with minimal risk per trade.
• High percentage win rate.
• Scalping is suitable for the impatient trader who is prepared to devote a lot of time and continuous focus to the market.
• Event risk is small as the scalper will usually be almost certain of a fill at the chosen exit point even if conditions suddenly change.
• You have larger profits than a position trader would.
• You don’t have to wait for a strong trend to start – it’s just not relevant with this strategy
• There’s no need of complex analysis about where the market is heading in the next few hours or days.
DISADVANTAGES OF SCALPING:
• Scalping is intense, draining, and demands a lot of screen time. Accurate timing is vital.
• Higher cost per unit of profit than longer term strategies.
• Scalping requires complex knowledge of market structure and order flow.
• Scalping can be very stressful and is not suitable for spread betting.
• A very high speed of trade execution command like the DMA execution type(Direct Market Access) is needed.