Scalping is a trading method in which the trading duration is very less it involves quick decision making and fast profit booking. Scalpers make a trading decision quickly and hold a position for a very short period. Scalping is a very popular trading style because of its fast money making characteristics which attract lots of traders, especially in the Forex market due to the high volatility in the Forex market. Where a swing trader and day trader used to hold a position for a day and aim for comparative big profit scalpers make fast and small profits and get out of the market as soon as possible.
Just like day trading Scalping also aims to close a position within a trading day and not carry a position overnight wherein day trading, traders use technical charts with 5 to 30 minutes time frame scalpers use tick and minute charts in order to make quick money. Scalpers track major economic events and try to catch a highly volatile movement at the time of an important economic report release which enables them to generate high returns out of the forex market due to the increased volatility in the market at the time of report release.
Scalpers trade multiple times in a day with an aim of small profits of few pips which usually stays under the 10 pips mark with high leverage. It enables them to take advantage of every market condition whether it is bullish, bearish or sideways. Scalpers trade in almost all types of market conditions due to the requirement of only few pip movement in the market which enables them to trade in every market condition.
Many times people think market makers and Scalpers are the same but that is not the case. Both the market makers and the scalpers are different, where the market makers get their profits with the spread scalpers pays for spreads. The market makers earn their money by the spreads or the difference between the bids and ask price of a currency pair. On the other hand, a scalper earns money by trading. Where scalper pays spread and it is deducted from their profits, market makers earn by the spreads. So although the objective of both market makers and scalpers are the same to get in and out of the market as soon as possible the profit-making component for both are very different from each other. And scalpers are the most profitable type of traders for market makers as they earn a lot of spreads because of the scalper’s multi positions.
How to be a successful Scalper
Trading is a very popular profession nowadays as it has a tremendous potential to grow your capital with an advantage of working at your home and being your own boss attracts a lot of people to jump into trading.
Forex market is a very popular marketplace for active traders as it has all the qualities an active trader wants in a market like high liquidity and potential to make the profit in both rising and falling market. And in forex market scalping is a trading style which is well suited for active traders. Below we had explained the most important points a scalper should consider in order to become a successful scalper.
1. Quick decision making and order execution
To be a successful Scalper you need to be a quick decision maker and should have a high confidence in your analysis, apart from that there are many things which can make your scalping business much more profitable. To be a successful scalper you must have a very good understanding of the trading terminal in order to execute your trades quickly and swiftly also you have to be very careful in choosing your broker and platform which can enable you to trade quickly in order to catch the market movement in time.
2. Selecting a right pair to trade
As a scalper you always need to hunt for the most active and liquid currency pairs to trade in. many successful scalpers prefer to trade only in the major currency pairs which includes Euro v/s USD, USD v/s JPY, USD v/s CAD etc. to become a successful scalper you need to trade with volatile and liquid markets and in order to achieve that you need to constantly search for good trading opportunity in the major currency pairs which offers good liquidity which can help you to make money out of the market in a smooth manner.
3 Selecting a right time to trade
To be a successful scalper you need to know when to trade a particular currency pair and what is the time when different currency pairs stays active. For example the pairs which are related to Euro stays active in the European market session and the pair EUR/USD usually have the highest volume in the time overlap between European and U.S. trading session. Similarly the pairs with Japanese yen like USD/JPY stay active in the Asian trading session the most.
4. Find the trend and follow it do not go against the flow
In Forex market finding a defined trend is very difficult but if you have found a trend then keep a track on that and try to find the best entry point to join the ride and then stick with it. Do not try to go against the flow before any strong indication of revival in the market.
To make a trend even more effective for your trading draw trend lines. Trend lines are one of the simplest and most effective charting tools. All you need is a straight edge and two points on the chart. Uptrend lines are drawn along two successive lows. Downtrend lines are drawn along two successive peaks. Prices will often pull back to trend lines before resuming their trend. The breaking of trend lines usually signals a change in trend. A valid trend line should be touched at least three times. The longer a trend line has been in effect, and the more times it has been tested, the more important it becomes.
5. Always use Stop Loss
Maintain stop loss is very important in trading because before making money you always have to save your capital and stop loss is not a thing which will stop the loss but it is a very effective tool to minimize the loss in a losing trade which is the key to surviving as a day trader. You should always keep your stop loss under the cap of 2% of your trading capital which is an ideal level of risk taken on a single trade.
6. Prepare your trading system
Forex market is a highly volatile market where you don’t have to worry about the volume but that comes with a cost you don’t have much time to think and specially in scalping you need to make very quick decision in order to catch the movement of the market because most of the big movements happen very fast. So you need to make a trading system which is focused on price action and conversion diversions or any other thing which is suitable for your personal preference as it depends on traders to traders what they prefer to read from a chart and what are the tools and indicators they prefer. But the key point is in order to be a successful trader in Forex market is having a strong and reliable trading system. And after the making of a system, you must always backtest the trades it enables you to find mistakes and flaws in your system which you can rectify and that will make it even more effective system which will help you to make money in the market in the future.
7. Know when not to trade
We all know that Forex is a 24-hour open market but that doesn’t mean you can scalp any time you want as for scalping you need high liquidity and volatility with good volume which usually happens in the market overlap situations like European and U.S. trading session overlap time and Asian and Australian overlap time. These are the time where you can get all the things you need.
Also, you need to consider your own situation as well. If you do not feel confident in a trade or even if you are not psychically healthy or tired you must take rest instead of taking a trade which can turn into losses. Always try to trade where you are totally fine and filled with positive energy it will help you to make profits out of the market.
The Bottom Line
Forex is a global market where an individual gets the opportunity to trade with and against the big banks and institutional traders which enable a retail trader to make extraordinary profits out of the market if he is a very good trader with a strong trading system.
Scalping is high pace trading style which is not suitable for everyone it requires quick decision making and strong technical analysis understanding. Not everybody can be scalpers but individuals with confidence in themselves and strong knowledge can do wonders in scalping business as it gives a big opportunity to a retail trader to make quick profits out of the market.
Scalping and trading requires a constant learning and flexible attitude a scalper should always record all the trade and keep the trading screenshots with him and analyze and backtest all the trader it enables him to understand the market also it helps him to learn from his mistakes which are very important in Forex market as it is a constantly changing market and one must keep the learning mode always on in order to survive in the Forex market.
If you are ready with strong technical analysis knowledge along with self-confidence with a good understanding of Forex trading terminals and have a good broker you can be a successful Forex Scalper and make decent profits out of the Forex market.