Scalping the forex market means that you trade often (sometimes dozens of times a day) looking for small gains with very little risk. You want to get in and out of the market fast while making a few pips each time. If you do this profitably often enough, you will make a small fortune in the foreign exchange.
One of your first concerns as a scalper is the spread you must pay on each transaction. What this means is that each time you open a trade, your account balance automatically is in the negative. Since the spread is sometimes as many pips as you are aiming for in a scalping trade, you can see how you are at a disadvantage. To help reduce this problem (you will never eliminate it), you need to find a broker that allows scalping. Some brokers don’t allow scalping at all, others don’t mind it. FXCM is one broker that allows scalping and even provides tools to help you scalp the forex markets better. As a scalper, you will be very interested in market depth. Market depth shows you the number of lots people are ready to buy verses the number people are willing to sell. Price movement is simply supply vs. demand, so knowing whether supply or demand is greater will tell you which way the market will move.
Market depth can change quickly. In just a second or two, a big bank may cancel a huge buy order which will reverse the supply demand paradigm. Seeing this and reacting to it quickly will mean the difference between you making or losing money. Now the beauty of scalping in the forex markets is that you can trade anytime you want – 24 hours a day. So if you just have a few hours every day to trade, you can still make some very good money by scalping the markets. And below is how you can go about scalp trading…
How to Scalp the Forex Market
A fascinating detail about the forex market that you may not know is that it has no physical home, and therefore not bound by rules or laws from a government or regulatory agency. The rogue nature of the forex market leaves it open to different forex strategies. One forex trading system is scalping, where the trader profits from an inconsequential price change that happens soon after you enter into a trade, or the trade begins to make a profit. If you know what you’re doing, using the forex trading system of scalping can be profitable, if you have an exit strategy. As easy as it is to make money scalping, one failed transaction can wipe out an entire day of foreign exchange profits.
As unpredictable as trading in foreign currency can be, it’s important that you find ways to make money that doesn’t rely on traditional forex trading systems. Good forex trading strategies offer more than opportunity to those willing to take the time to learn and perfect their scalping system. Once you have a forex trading system in place, make sure you don’t lose more than you make, and you should have no problem making a daily profit. Make sure you increase your gains and limit your losses over time. It’s vital that you understand the forex trading system of scalping and make it work in your favor.
The first forex trading strategy, called the Primary Style of scalping, occurs when the trader (or scalper) participates in many trades each day. These scalps can be as little as ten or more than hundreds of trades each day. This forex trading strategy reԛuires you to rely on shorter periods such as one-minute intervals, which allows you to see the action as it unfolds. Dealing in these short periods means that you must have astute decision-making capabilities as well as a timely entry and exit into the forex market. Many scalpers who use this trading system also utilize a direct-access broker to guarantee instantaneous action when the market stays it’s warranted.
If you’re trading in the forex market but make use of a timeframe other than the one used in the Primary forex trading system, consider scalping only as a complementary forex trading strategy. This supplementary approach relies more on you exploiting trends where you find them, rather than making a system where none exists. If you normally deal with a longer timeframe for trading, and the market is irregular, exploit the trends you see within that shorter timeframe. This gives you the opportunity to make smaller profits when you wouldn’t typically make any profits.
Many forex brokerage firms frown upon certain forex trading strategies in general, but scalping in particular. Although these forex strategies are frowned upon they aren’t illegal, and both the primary and supplementary systems can give way to high profits. A big concern for you when implementing this trading strategy is how to execute a precise exit strategy. Exiting the market at the wrong time can easily wipe out all your profits for a whole day. If you have your doubts about using a forex trading strategy like scalping, make sure you understand the basic risk to reward ratio, in addition to how you can make scalping work for you. Strict obedience to your exit strategy as well as a cautious eye on trends within the foreign currency market, will allow you to trade in foreign currency with relative ease.