Risk of Scalping in Forex
What is Forex Scalping?
'Forex Scalping' is a trading strategy used by forextraders to buy or sell a currency pair and then hold it for a short period of time in an attempt to make a profit. A forex scalper looks to make a large number of trades and earn a small profit each time.
Forex is a market where many strategies have to be applied and combined to increase winning odds. All forex strategies include studying the market closely, and there is not one strategy that covers traders from head to toe, carrying no risk factors.
Scalping is one of the most common strategies in the forex market and it is the subject of this review.
Scalping technique may be very appealing, as the trader is able to make an entire day’s profit in just some minutes. However, this is a false impression. In reality, scalping can be very difficult, since there is almost no room for error.
Forex scalping is the trading method by which the trader makes quick and small profits by opening and closing new positions within minutes.
The profits made from scalping are understandably much lower, and the scalper depends on many small profits as opposed to making it big with one specific position.
The scalping technique lowers your risk as a trader, and on the flip side, lowers your potential for great profit. When all of a scalper’s small profits are combined, is where they make their money.
Scalping trading system for investors who love adrenalin, who simply cannot live with the boredom of checking forex prices once a day, making small adjustments and allowing the market to take its course.
What it involves is trading in a very short time frame, with the smallest possible stop loss. Scalpers often open and close trading positions within a matter of minutes, which is why they usually use one-minute charts to guide their trading decisions.
Scalping is designed for traders who have no problems with being stuck with their computers for a whole day/night.
Scalpers are not allowed to lose focus, not even for a moment, when they are hunting spreads, especially on small moves.
Scalpers do not have time to think; they have to make the right decision at the right time under huge pressure.
Quick decision-making and assessing the right timing are the most important qualities of successful scalpers. For example, being able to cut positions as soon as they move against your favor requires fast decision-making. A lot of self-discipline needs to be exercised when traders want to profit from scalping.
Forex trading, in general, requires consistency on the part of the trader. This is magnified when it comes to scalpers. Trading unpredictable size positions will inevitably lead to a closing of your trading account.
The scalping method, after all, is based on the principle that your small profits will overpower your losses. It is clear that attentiveness and strong concentration skills are necessary for the successful forex scalper. One does not need to be born equipped with such talents, but practice and commitment to achieve them are indispensable if a trader has any serious intention of becoming a real scalper.
The reward/risk ratio is very low in the case of scalping. Every trade comes with a built-in cost and commissions in the form of the spread, which can easily eat up a series of small wins.
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