Forex scalping is one of the most effective trading strategies for accumulating significant profits over time with minimal risk exposure. However, this form of trading is not for everyone. It requires personal qualities, like patience, consistency, and self-discipline, as well as a willingness to put in the hours on a day-to-day basis. These qualities needn’t be innate and can be developed. Nevertheless, it’s true that some people are more temperamentally suited to scalping than others.
What is forex scalping?
Scalping on the foreign exchange (forex) market means rapidly opening and then exiting positions to make a quick profit from temporary fluctuations in the bid-ask spread of a given currency pair. An effective forex scalper may make over a hundred such trades in a single day and will repeat the process daily.
Unlike day traders and longer-term investors, scalpers rarely keep a position open for longer than five minutes, and in some cases, execute a trade in seconds. This means less market exposure and so, in theory, less risk, although in the long-term, this relies upon the scalper following a consistent and disciplined strategy, as this forex scalping guide explains.
Making a profit
In avoiding major risks, scalpers also make only modest profits on each trade. This means that they need to keep trading consistently, day in, day out, to maintain a worthwhile income. Although, like any traders, they will sometimes lose money on a transaction, an effective scalper should come out ahead in the long term.
Making a consistent profit from modest but frequent gains in this way requires a great deal of patience and dedication. Unlike the risk-taking occasional trader, who hopes to make a small fortune from a handful of transactions, the scalper must, by nature, keep chipping away, following the same strategy and avoiding the temptation to risk everything on one big trade.
A full-time job
Forex scalping should be approached in a similar way to starting your own business, with the scalper expecting to put in six to eight hours per day, watching the markets, studying financial news, and executing trades. Automated trading systems can take on some of the workload but are often unreliable and a false economy. Ideally, a scalper should combine manual trading with a degree of automation that they’ve selected personally, such as an automated stop-loss.
Attention to detail
Diligence is another essential quality required, along with the ability to concentrate for extended periods while conducting repetitive and even mechanical tasks. As mentioned earlier, the scalper may execute scores of similar-seeming transactions per day, but because they are profiting from volatility, each one is unique and unpredictable.
The scalper must always be on the lookout for windows of opportunity and be ready to move. The market may have an emotional reaction to a news story, or a moment in time where demand outpaces supply. This is when the scalper, keeping a clear head, can turn a quick profit, either by buying and then selling or vice versa.
The ability to stay calm and focused under pressure, to work consistently with patience and with self-discipline, are essential qualities for an effective forex scalper. This way, small profits can eventually add up into a significant income.
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