In the world of forex, you can apply so many trading strategies that will help you profits from currencies’ movements. One such strategy is scalping.
What is Scalping?
Scalping is a strategy that lets you gain huge profits from multiple smaller gains. In a nutshell, it’s opening multiple positions and closing them all at the same time.
When you do scalping, you can place 10 to a few hundred trades in a single day. Your primary goal is to catch smaller moves in a currency pair’s price instead of going for the bigger ones.
With this strategy, you need to have a very strict exit strategy. That’s because you need to avoid the risk of losing all of your smaller gains to a huge loss.
Benefits and Risks
This strategy also sports its own inherent benefits and risks, just like any other strategies.
One advantage of scalping is that you can make use you of many trading signals on very short timeframes.
Another good thing is that you avoid incurring overnight risks. Overnight risks refer to the probability of losing a trade by leaving it overnight and closing it the next day. This also means you can easily count your profits by the end of the day. A good night’s sleep also doesn’t sound half bad.
And if you worry that you don’t know a lot about fundamentals, don’t worry. You’re not going to use those. Fundamentals do no play huge roles when you’re using very short timeframes. The only thing you need to focus on is technical analysis.
On the flipside, when you have a huge number of trades, your transaction costs can easily pile up. It’s going to be a bit more expensive if you compare it to other longer-term trading strategies.
At the same time, you need to actively manage all the trades you open during the most liquid hours in the trading session.
Also, when you forget to check the news, you might end up getting caught in a roller coaster. Unexpected news can easily move the markets in directions you don’t favor.
Consider Your Personality
With those benefits and risks being said, scalping doesn’t sit well with everybody. As with any other trading strategies, this isn’t a one-size-fits-all strategy.
For you to become a good scalper, you need to have the patience for the risky process. You might have to sit in front of your computers for the whole session. You may not be able to scalp properly if you easily get distracted. Concentration is key in this strategy.
It goes without saying that you need to react quickly to changing market conditions. You need to be alert without overanalyzing your every move.
Overall, being a scalper takes a lot from the trader. With scalping, you take the risks of opening multiple trades at once in a very short timeframe. Then, if your calculations are correct, you can benefit from many small gains that can add up and turn out to be a huge profit for you.