One of the popular strategies among traders is Scalping, which involves the rapid opening and closing of positions. Some scalpers deal with each trade of 5-15 pips within 5 minutes tops, while most traders stay in a trade for as little as 1 minute.
How Does it Work?
The trick in scalping is to be in and out with a profit but still maintain the discipline and risk management. While trading, you might want to pay attention to market indicators which affect currency rates.
Exchange rates tend to fluctuate based upon economic and political news events - on both the national and international levels. There are several key indicators that scalpers (or any Forex trader) pay special attention to before investing:
1. Government statistics, including the Gross Domestic Product (GDP) rate
2. Unemployment figures
3. Trade balance reports
5. Interest rate announcements
Not every trader can be a scalper. Since positions are opened for a short period of time, each return might seem insignificant. Combined together, however, great gains can be made. Scalper is a trader who doesn’t like to risk and only looks for safe, small and frequent opportunities.
What are the Challenges?
The difficulty that most scalpers face is the lack of patience. Some traders find it hard to trade in such small portions and feel motivated enough to collect these pieces of pips into a bigger profit picture. If you tend to get excited easily and have a plan to produce large profits with each trade, scalping strategy is definitely not for you.
Being a scalper requires great concentration and knowledge. Since you will be opening and closing many positions during a day and each position will bring small profits, you can hardly afford to suffer the losses.
Scalping is a very challenging and time-consuming technique. If trading is not your full-time job, you should probably scratch scalping out of your to-do list! You will have to give up at least 6 hours a day in order to make a decent earning.
4. Forex Brokers that Allow Scalping
Believe it or not, some forex brokers do not allow scalping. You will read about it either in their terms and conditions or find it extremely difficult to scalp with brokers that make sure this strategy is impossible to implement.
Overall, scalping is not for everyone. Before you step blindly into it, you have to figure out your trading character, plan out the trading style and consider all the pitfalls lurking behind scalping.