Trading in the financial markets can be exciting and potentially rewarding. Among the various types of assets you can trade, the Forex market is used by seasoned investors and amateur traders. One of the popular methods for trading forex is the scalping strategy.
Before you get started, however, it’s important to do your research and make sure you understand the nuances of scalping.
To help you on your way, read on to learn more about scalping strategy in Forex and find out if it’s the right approach for you.
What Is Scalping?
Scalping refers to making a profit from relatively minor changes in market. When applied to Forex trading, scalpers will buy currency pairs they believe will increase in value, and sell them once the price has risen.
However, a scalping strategy doesn’t involve holding onto the currency for as long as possible in the hope that your profits will continue to accumulate.
Instead, traders will typically sell once a relatively modest profit can be realised. Often, scalpers will sell after a movement of just 5-10 pips, for example.
As the market can move quickly, scalping can involve buying and selling in quick succession.
In fact, scalping is the quickest form of day-trading, with some scalpers re-selling currency pairs after a few seconds or minutes.
How Do You Implement a Scalping Strategy?
When using a scalping strategy in Forex, you’ll be buying and selling regularly and trading at a high volume.
This means that you’ll want to identify the best online platforms and familiarise yourself with the tools you’ll be using.
To be successful, you need to be able to trade quickly, so take all the time you need to become proficient in the practical aspects of making a trade.
In addition to this, you’ll need to know how to read and interpret the technical analysis that’s available.
It’s this information that can help you to make the right decisions and decide which currencies are going to rise and fall.
Trendlines, support and resistance levels, and candlestick charts are popular tools used when implementing a scalping strategy in Forex, as are technical indicators like stochastic oscillators and Bollinger Bands.
Setting Limits When Scalping
If you want to generate a return with a scalping strategy, you need to make trades quickly and sell once the price has moved in your favour. To facilitate this, many trades set limits and automate their trades.
You might want to automate the sale of a currency pair once the value has increased by 10 pips, for example.
Alternatively, you can minimise risk and reduce your losses by automating the sale of a currency pair if its value falls more than five pips.
Is a Scalping Strategy Right for You?
Scalping is just one of many trading strategies that can be used on the Forex market.
While it can be profitable, you need to make a high volume of successful trades to make a significant return.
While any form of trading inevitably carries some level of risk, scalping is a form of short-term trading that can be fast paced and enjoyable.