Scalping is one of the most preferable forex trading strategies in the forex market. Traders favour this strategy over others because it is fast-paced, allowing traders to get in and out of their trades in a short period of time. There is only a little waiting involved, unlike other strategies.
However, scalping is easily one of the riskiest trading strategies. Scalping involves making quick trading decisions; not everyone keeps up with this. So the question arises – Should you try scalping? What’s the impact of scalping on forex trading? We will talk about all this in this article.
Benefits of scalping
- There is no need to be glued to your screen all-day
Compared to most trading strategies, scalping is fast-paced, with execution times ranging from mere seconds to a few minutes. Thus, this shorter timeframe doesn’t demand much time from traders. You can enter and exit your trades faster than traders who trade over longer timeframes.
You can also use the help of different trading tools to find the right margin requirements, pips to capture, position size, and many other precise details. These tools will help you trade with less risk and maximise your profits.
- Scalping can be a low-stress way to trade
Since scalping is a trading style with quick entry and exit, you don’t have to bear the stress of trading for a longer duration. You can carry out multiple trades, accumulating small profits at intervals.
However, with other trading strategies, you have to focus on achieving the same profit target in one go, which can be stressful for traders.
- You don’t need a large account for scalping
Being a popular trading strategy, scalping is practised by many traders. Thus, you will also see brokers offering special accounts that are made for scalping only. These accounts have a low deposit requirement, making them accessible to traders on a shoestring budget.
Moreover, scalping is a short-term trading strategy that focuses on winning small profits on short-term price movements. Thus, many brokers offer account types that are especially suitable for scalping with small capital requirements.
- You can scalp in any market conditions
You can scalp in any market situation, whether it is trending or just consolidating with a lot of volatility. Why is that so? This is because the strategy relies on short-term price movements rather than the market’s overall trend.
Drawbacks of scalping
Scalping may look like the only strategy you need for success. And it may be so, but it has drawbacks. Before you begin scalping, here are a few drawbacks that you should know of –
- Scalping can be stressful
Though scalping may seem easy in and out, it requires a lot of hard work. The market’s rapid movements can change their course instantly, and if you fail to make the decisions in a short timeframe, you could lose the trade.
Therefore, this high-intensity trading is only for those who do things quickly and decisively.
- It can be challenging to stick to your trading plan
In the short scalping timeframe, a lot of things can happen, from drastic price movements to last-minute changes in plans. Many forex traders quit scalping because of their lack of control over following the plans above.
So try scalping only if you can abide by your rules. Do chase profits if the market looks “promising” to you today.
- You may miss out on big moves
When you take part in scalping, you trade with tight stop-losses and take profits. This is necessary so that you don’t suffer losses because of the market’s abrupt movements.
But this has a downside, too. You could miss the big market movements, which could be awaiting you after you exit your trades.
- Scalping can be costly
The deposit requirement is not the only condition that you should put in your checkbox before scalping. Scalping involves other trading costs, including commissions and spreads. All these costs may add up to a big sum. So, to avoid that, be upfront about all these costs with your brokers.
- High discipline is required
In theory, scalping is an easy strategy. But it’s not. Anyway, which strategy is easy? Scalping demands a list of skills: quick decision-making, proficiency in reading charts, a well-tested strategy, trading psychology, and so on. If you are ready to work on all those skills, you should go ahead with it or any other strategy.
How to apply the scalping strategy in Forex
Here are the steps on how you can implement the scalping strategy –
- Choose a currency pair: You should start by selecting the currency pair you are interested in to try scalping. Major pairs are best to try scalping, as they are stable and have lower spreads.
- Find a time frame that works for you: After selecting our trading pair, choose the trading time frame you are most comfortable with. The trading timeframe for a scalper lasts from a few seconds to a few minutes. Choose what you are comfortable with.
- Identify key levels: The third step is to determine the levels of support and resistance, which will help you find your trades’ entry and exit points.
- Place your orders: You can begin placing your trades. Make sure that you have small profit targets. You can use a higher leverage to maximise the profits of scalping but avoid overdoing it.
Margin calculators can help you show that you don’t overstep it. You can choose a leverage of your choice, and the calculator will show you how much deposit you need to make. The lower, the better. This way, you will avoid risking capital that is beyond your risk level.
Is it worth it to use scalping when trading forex?
All trading strategies serve a purpose, and so does scalping. If scalping can help you achieve those trading goals, then you should go for it. This strategy is preferred by traders who want to do things quickly.
Thus, you will see part-time traders or busy professionals using this trading strategy. Like other strategies, scalping requires you to be skilled in making decisions within a short span of time. You should also be thorough with the concepts of pips, as profits made on scalping are from small pip movements. This is where you would also need pip value calculators. You should know how to use them because they make your calculations faster and easier.
If you are someone who can do that while maintaining risk management, you can try scalping. However, it is always a good idea to test whether a strategy is for you or not before risking your money. So, you can try scalping on a demo trading account before actually doing it in live trading.
Sharon Howe is a creative person with diverse talents. She writes engaging articles for WonderWorldSpace.com, where she works as a content writer. Writing allows Sharon to inform and captivate readers. Additionally, Sharon pursues music as a hobby, which allows her to showcase her artistic abilities in another creative area.