Scalping is like those high action thriller movies that keep you on the edge of your seat. Itís fast paced, exciting, and mind-rattling all at once. These types of trades are usually only held onto for a few seconds to a few minutes at the most! The main objective for forex scalpers is to grab very small amounts of pips as many times as they can throughout the busiest times of the day.
Because scalpers basically have to be glued to the charts, it is best suited for those who can spend several hours of undivided attention to their trading.
It requires intense focus and quick thinking to be successful. Check out this post by our regular psychologist, Dr. Pipslow, on how to to work on your concentration skills.
It is not for those looking to make big wins all the time, but rather for those who like raking in small profits over the long run to make an overall profit.
You might be a forex scalper if:
You like fast trading and excitement
You donít mind being focused on your charts for several hours at a time
You are an impatient person who doesnít like to wait for long trades
You can think fast and change bias, or direction, quickly
You have fast fingers (put those Starcraft 2 skills to work!)
You are a surgeon!
You might NOT be a forex scalper if:
You easily get stressed in fast moving environments
You canít commit several hours of undivided attention to your charts
Youíd rather make fewer trades with higher profit gains
You like taking your time to analyze the overall picture of the market
Some things to consider if you decide to scalp:
Trade only the most liquid pairs
Pairs such as the EUR/USD, GBP/USD, USD/CHF, and USD/JPY offer the tightest spreads because they tend to have the highest trading volume. You want your spreads to be as tight as possible since you will be entering the market frequently.
Trade only during the busiest times of the day
The most liquid times of the day are during the session overlaps. This is from 2:00 am to 4:00 am and from 8:00 am to 12:00 noon Eastern Time (EST).
Make sure to account for the spread
Because you enter the market frequently, spreads will be a big factor in your overall profit. Be sure your targets are at least double your spread so that you can account for the times the market moves against you.
Try focusing on one pair first
Scalping is very intense and if you can put all your energy in one pair, youíll have a better chance at being successful. If you start to get accustomed to the pace of things, then you can start by adding on another pair and see how it works for you.
Make sure you follow good money management
This goes for any type of trading, but since you are making so many trades within a day it is especially important that you are sticking to risk management practices.
Major news reports can throw you off
Because of slippage and high volatility, trading around highly anticipated news reports can be very dangerous. It sucks when you unexpectedly see price jump in the opposite direction of your trade because of a news report! Be prepared and know whatís coming out by checking out the BabyPips.com economic calendar.