Many new traders enjoy trading on the foreign exchange market because of the pace and high activity of the trade. If you are one of these beginners then you would most likely be suited to the forex rates trading technique scalping. Scalping is a short-term strategy used by impulsive traders and requires skills in multiple trades. It is important you understand these features and many others before deciding on this trading strategy as not all do well with scalping.
What is scalping?
Before using scalping as a forex rates trading strategy you must have an awareness of what the strategy actually is. This trading technique is a short-term strategy whereby you will execute numerous quick trades in a single day. Each trade will make only a few pips of profit, but as there are hundreds of trades you could make a fair amount of money off scalping.
When using scalping you need to consider both pros and cons. Firstly you must consider that this is a very risky style of trading. You must also consider the type of analysis you will have to conduct. Another point to look at is your personality as scalping requires a particular type of trader in order to be effective.
What type of forex rates analysis is required?
The majority of traders believe that scalping can be done using technical analysis. However, this is not the case as scalping is more effective when using fundamental analysis. This is due to the fact that fundamental analysis is better at pinpointing immediate trades. However, an element of technical analysis can contribute to success in scalping by identifying the entry and exit points of the trade, as well as the trend to use.
An advantage of scalping is that it can be used in both a trend and range market. In range markets there are small price movements that most traders will not profit from. However, a scalping strategy uses these small movements as a trading position. Trend markets are good from scalping because you can make numerous trades on a single trend. However, you must be cautious on a trend market as market movements are uncertain.
Does my personality matter?
To be successful on the forex rates market you must use a trading strategy suited to your personality. Scalpers need to be confident and impulsive as they are required to make quick decisions in high-pressured situations. If you do not have this personality you will not be successful as a scalper.
What are the risks of scalping?
When considering which trading strategy to use you must examine all risks involved. The scalping strategy is deemed one of the riskiest strategies available as these traders use greater amounts of leverage than others. Leverage is used to increase the value of the small pip movements and can increase profits. However, the use of this leverage increases the chance of detrimental losses should a trade turn bad.