In the next post, we will develop what scalping is in Forex, its characteristics, what factors determine if a scalping operation is feasible, how to operate in scalping, and finally, we will see some tips to make a good scalping in Forex.
What is Scalping in Forex?
Scalping is a variant of day trading that consists of entering and exiting currency operations in a concise period of time, usually a few minutes or even a few seconds. Small profits are made. Traders who use this operation make many trades throughout the day.
It is a high-speed operation; therefore, the candles that traders observe are usually a maximum of fifteen minutes. However, the most frequent is to use candles of only one, two, or five minutes.
Investors who use this trading tactic are called scalpers and have a pretty frenetic pace of operations, so it is only suitable for some investors. A scalper always keeps trades open from one day to the next. They aim to take advantage of small price fluctuations, which they believe are more accessible to predict than more significant trends.
What characteristics does Scalping have in Forex?
Next, we are going to detail six characteristics of scalping in the Forex market:
- Profits can be easily obtained if the trader knows how to detect possible market volatility
- Spreads consume a large part of the profit.
- The benefit/risk ratio is generally meager.
- Not all Forex brokers allow scalping.
- It takes a lot of time to trade and watch as scalping requires many daily trades.
In addition, you must be very aware of macroeconomic news because they make the market volatile in the short term. For this, it is convenient to be aware of the economic calendar.
What factors determine if a scalping operation is feasible?
It is only sometimes convenient to operate in scalping in the Forex market. The relevant factors in determining if a scalping operation is feasible are:
Determining factors for a feasible scalping operation
- Volatility level
- Spread and fork
- Broker commissions
The higher the liquidity, the more opportunities to open and close trades without having execution problems. Forex is the most liquid market in the world. Therefore, it is perfect for scalping.
Highly volatile markets make trading difficult, as it is more difficult to find the right time to enter the market, and it is easier for stop losses to be hit. You have to look for markets with medium volatility.
The spread or fork
Assets with a wide spread make this type of trading very difficult.
Broker commission levels
When you want to operate in operational Scalping, you must take into account the following:
- The cost of the platform or software that you will be using.
- The commissions the provision applies to us to access the market for execution and settlement of operations.
- The administrative, management, and maintenance commissions of the account.
It is necessary to be very clear about the costs that will be assumed and try to choose a genuinely competitive provider, to allow the costs of our Scalping to be sustainable over time.
It is essential to know what level of leverage our broker offers us, it will allow us to have greater profitability with less capital necessary to operate. Remember that leverage is a risk multiplier, which means that just as you multiply your gains, you can multiply your losses. The higher the leverage, the lower the margin to open operations.
How to trade in Scalping in Forex?
These are the six aspects to consider to operate in Scalping in the Forex market:
- The recommended currency pairs for this technique are EUR/JPY, GBP/USD, EUR/USD, and USD/JPY. They are characterized by high volatility during the day and low spreads.
- The most advisable time to trade is at the intersections of the trading sessions: European / US. US and US/Asian.
- To prepare to enter positions, it is better to watch the quotes of the candlesticks per minute or at most for 5–15 minutes.
- Enter the position when you think you have “caught” the current short-term trend.
It is recommended to put the stop-loss at around ten pips so that you will have controlled losses.
The general rule of thumb for the profit target is one or one and a half of the spreads.