If you’ve looked around online for information about Forex and Forex trading strategies, then it’s likely you’ve come across the practice of “scalping.”
In the Forex market scalping is an extreme example of day trading which involves traders who buy into a position intending to see a quick market movement, and then sell. Most scalping trades last only a few minutes, and none more than a day.
While technically some one or two hour trades can be considered scalping, generally that’s just referred to as normal day trading. When someone in the Forex market mentions scalping, the image is of that “surgical precision” trade. The scalper who is trading the Forex is a trader who opens and closes a position in literally minutes – or in rare cases maybe even less than a minute.
The theory behind scalping is that by anticipating an immediate surge to a news release or other evens, a trader can jump in, and since the movement is so quick, they can show a profit, then immediately exit to help minimize the risk. By doing this effectively, a trader in theory could collect smaller profits bit by bit while avoiding any large violent market swings that could cause you to lose a lot of pips.
One of the most important parts of scalping is to have a stop and exit in mind before entering into a position. That way as soon as the market moves in either direction, the position is immediately closed. Even a few pips difference can be a big deal, since the leverage in the Forex market allows them to make a profit off even the smallest pip gains.
Scalping may limit potential losses, but since all transactions are so quick, it can also limit potential profits, since it would require a quick exit from what could end up being a breakout market.
So like any trading strategy, there are positive and negative points to this strategy. While scalping my be a favorite practice among some day traders, if you’re just starting in the Forex market, it’s best to find a solid Forex trading system that concentrates on long term strategies.
Learning to use a dependable long term system is the first step of profiting from Forex trading, and needs to be taken before even considering moving on to anything else, especially to something like scalping, which is an extreme version of day trading and not an easy skill to learn effectively.