There is no single opinion about the scalping trading strategy. However, more and more traders are getting interested in this method. Why does scalping look so appealing? Probably because it is one of the few ways to make a quick profit on Forex.
The main idea of scalping is to earn on intraday price movements.
Intraday trading appeared along with the first stock exchanges. What could be simpler than buying something cheap in the morning when stocks open and selling it at a higher price when the trade closes? In the very beginning, intraday trading was available only to stock exchange employees, because it was necessary to be there for quick deals execution. But technological progress changed it all. First, the telegraph appeared, then the telephone followed. It was no longer needed to be present on the stock exchange. As a result, the number of traders involved in short-term speculation began to increase. At that time, stock quotes were delivered through the telegraph, while the telephone became a means of sending requests to a broker. Such trading was popular until computers and computer networks were invented.
The Internet made stock and Forex trading available for everyone. Further on, intraday trading got the second wind along with trading platforms’ development transmitting quotes right to the computer and allowing instant execution.
The forex market is the best one to use the scalping strategy. On Forex, it is possible to trade the amounts 100-500 times exceeding the deposit which creates incredible earning opportunities. In addition, the forex market has the highest volatility. On average, currencies mobe by 50-100 pips during the day. However, this is true only if you take into consideration the opening and closing price of the day. Yet, currency rates do not constantly rise or fall within the day but rather make slight fluctuations. Therefore, it turns out that in total the currency moves by much more pips during the day.
The scalpers’ goal is to earn on every micro movement. During the day, some traders make more than 100 deals. The duration of an open position in this case may take only a few minutes. In those few minutes, the Forex market makes a move in the right direction by a few pips, which the scalper gets as a profit after closing a trade. Of course, the profit from such trade is relatively small, but it can reach a significant amount in total.
Deals are not always profitable and if the market moves in the opposite direction, the position should be quickly closed without any regrets, otherwise losses would be great.
Basic scalping rules:
Scalping means trading ALL small price movements that exceed double spread and slippage.
A scalper does not care about where the market moves. The main thing for scalping is strong oscillations.
Strict risk-management is important. A scalper should close a position if there is even a small risk of a reversal movement. Take profit is done at the end of day trading.
The scalping strategy is actually a very complicated method. However, almost all beginners try their hand at it.
Let’s talk about some obvious disadvantages:
In scalping, the stop loss level is set very close to the current market price. With the stop loss, it is very easy to have losses even from minor market noise. The simplest decision is not to place the stop loss. However, one strong market movement is enough to override all your previous achievements and even drain your entire deposit.
And probably the main disadvantage of scalping is the constant pressure.
Scalping requires constant monitoring of the market which can be rather stressful. It is necessary to have nerves of steel to be able to trade in such conditions: there is no room for mistake. So, if you stay in this trading mode for a long time, you are most likely to lose your deposit.
Yet, advanced technologies are of great help in trading.
With the development of trading software, various automated trading systems (ATS) became available for scalping. Scalping is gradually turning from daily monitoring of quotes into writing and constantly updating the program which works during the whole trading session and collects the pennies at every tick. Some traders say that it is impossible to create an automated trading system for scalping since trader’s intuition plays an important role in this strategy. Still, the trading program can make the process much easier.
To some it up, we would like to quote a famous scalper Paramon:
"Scalping for me is a trading method that matches my psychological type. Just like any other strategies, it has its advantages and disadvantages. For example, in long-term trading we get a lot of free time. The same cannot be said about scalping. With scalping, you need to work the whole trading day and you feel exhausted at the end. On the other hand, a scalper can earn much more than a trader who prefers medium- or long-term trading. Moreover, the process of price movement is always in front of your eyes and you can quickly react to any market changes. It is this tedious trading that allows you to gain invaluable experience. You also gain a better understanding of the price movement of this particular currency pair and develop the skill of predicting further market situations. And on those days when you earn the profit equal to your deposit size, you feel encouraged for the rest of the week."