Forex scalping is pro way of denoting the “skimming” of small profits with consistency. In other words, going in and out of positions several times per day.
As we know, a Day Trader is a trader that usually closes all his positions at the end of the day. Day trading is considered a fast way of pocketing profits, benefiting from short term moves in price. A day trader is more focused on technical analysis and chart analysis and doesn’t pay that much attention to the fundamentals. Usually, long term traders use the higher time frame charts like daily and weekly, with a strong focus on economics and politics. But a long term trader can have a trade open for 2-3 days, a week or even more. Of course, if the trade closes in profit, it will bring him a lot of pips because as we know, a candle on the daily chart contains much more pips than a 15 minutes candle, even if they both look the same. Look at the two pictures below. First one is a daily chart and the second one is a 15 minutes chart.
Forex Scalping – Beyond the surface
As you can see, even if they look approximately the same, the two candles are very different when we look at the pips contained by them. The daily candle has 146 pips and the 15 minutes candle only has 18 pips. This is why the long term traders make a lot more pips from one successful trade than a day trader. But there are some things that must be considered: a trade on the daily charts takes a lot more time to conclude and the risk involved in higher because you need a wider stop loss.
While a long term trader waits for his trade to close, a day trader can take a lot more trades, with a smaller risk on each one of them, thus being capable of making more profit than the long term trader.
Now, think about how many trades could be entered by a trader that uses the 1 and 5 minute chart and just aims for 3-5 pips profit and exits his trades in less than 5 minutes. The amount of trades can be huge during the course of one day. This fast paced way of trading is called “Forex Scalping” and it can bring a lot of profit, but also it requires a lot of concentration and constant monitoring of the trade. Profits come from the amount of successful trades, even if the profit from one or two trades is insignificant and that’s why a trader must be constantly in front of his computer.
A scalper does not need to be aware of economic environment or long term trends because even if we have a strong uptrend on the 4H chart, surely we can take 3 pips profit on a short trade on the 1 minute chart. Because the move we are looking for is a very small one, it is much more probable to happen even if the overall sentiment is against the direction of our trade.
Forex scalping is not for everyone and if you think about applying this technique, you must make sure that it fits your trading style. A scalper always takes small profits that add up, but some traders can become frustrated if they only took 5 pips profit but price continued to move in the original direction for 50 more pips.
There is another thing you must take into consideration when scalping: the broker you are trading with. Forex scalping is not approved by all brokers and that is why you must ask them if they allow scalping before opening an account with them.
When it comes to forex scalping strategies, most of the longer term strategies can work because the same principles apply, but on a smaller scale. Maybe the settings for the indicators must be adjusted to give early signals and also proper money management techniques must be applied. Of course, if you adapt a 1H strategy to 5 minutes, you must make some changes.
Always keep in mind that forex scalping is very risky, just like any form of forex trading.
