Scalping in the forex market is a short term trading style used by traders to buy or sell currency pairs in real-time analysis.
Artur Hochberg of soarfx.com says that a forex scalper anticipates making lots of trade while taking advantage of the small price movements that occur during the day. The purpose behind this is to make profits.
How Scalping Works by Artur Hochberg
Scalping works on the assumption that most stocks will finish the first stage of a movement. But from there, things get uncertain. Some of the stocks could continue while others could remain dormant.
For the scalping to work, there should be a targeted profit, relative to the security price. Scalping traders may also follow upcoming events or news that may increase volatility in a stock.
Small quick profits add up when the number of winners is increased. For this to happen, the trader must sacrifice the size of the wins. The ratio of winning trades must be higher compared to the losing ones.
Artur Hochberg says that a scalper does not let profits evaporate, and must keep them slightly bigger than the losses.
Just like any other trading style, there are advantages to scalping, and some downsides.
The Pros of Scalping
- There is no overnight risk. A scalper can be able to quickly summarize profit and losses by the end of the trading day. He doesn’t have to wait for the trade to close, and this reduces any chance of reversal that may harm the trading position.
- The scalper gets more profits than being a position trader. Usually, a scalper makes between 5 to 10% in a trading day. He can close all his open positions, take the profit, and leave without having to worry about how the market will do.
- A scalper can be able to focus on technical analysis because fundamentals don’t play a vital role in short timeframes.
- It is one of the best strategies employed by newbies in the currency market. The market requires less knowledge to establish trading theories.
Cons of Scalping
- A scalper needs to manage all trades during the most liquid hours. In addition, unexpected news can bring a significant market reaction and overturn a profitable scalping trade.
- A large number of trades can increase transaction costs, which is different from the long-term trading style. For this reason, many forex traders believe that scalping is less profitable, and playing a more extended position is better.
Forex scalping for a living requires the scalper to have skills to analyze the market due to the short time frames. Artur Hochberg says that although it is profitable, scalping calls for high levels of focus and discipline.
If you decide to scalp, try using a trading simulator. Use it until you’re consistently profitable. And from thereon, you are sure of making a sizeable income from your trading business.