Sunday, 11 January 2009

An Introduction To Forex Scalping

Scalping for quick small profits is a very popular Foreign Currency (Forex) trading strategy, requiring extreme discipline and focus. True Forex scalpers make between 10 and 100 trades per day. If a position goes against them they exit quickly rather than holding on and hoping that it will turn around. A Forex scalping system aims to make 5-15 pips per trade.

The goal of a Forex scalper is to buy or short a pair of currency at the bid or ask price and then sell quickly when the trade is in profit by a few pips. Using this trading strategy of taking a few pips out of the Forex market at a time, can easily compound into large gains as long as a strict exit strategy is used to prevent losing trades absorbing all profits.

Generally Forex scalpers use the 1 min, 5 min and hourly charts to find trades that can make them a small profit. As the Forex scalper is only interested in making 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 successful as a Forex scalper are:

- Make sure you know when news relevant to your currency pair is coming out.

- Write down the previous days Open, High, Low and Close.

- Learn some basic candlestick patterns so you can identify them when they occur.

- Draw in major trendlines and pivot points on the daily and hourly charts of your currency .

- Determine the major direction for the day, Bullish or Bearish, trading in the longer term direction will gives trades more chance of being successful.

- Adjust your stop when you are 10 pips in profit.

- If the trade is taking to long to go in your direction or you dont feel comfortable with it, get out.

One advantage of Forex scalping is that the small targets of 5-15 pips are easier to achieve.

One of the frustrations Forex traders have is when the trend reverses during a trade, because Forex scalpers get in and out of the market quickly this is less likely to happen. Many people have been successful with Forex scalping, so there is proof that it can be a profitable 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 profits 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 begin Forex scalping. They may become addicted to making random profits. especially if they are immediately successful. This can lead to the trader taking more risky trades and not sticking to their plan. A second trap is trying to make up for the losses of yesterday. New traders often think about how they can win back the money they lost a previous day, this tends to cloud their judgment and can lead to emotional trades that are doomed for failure.

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