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What is Scalping in Forex Trading?

By Total Trader | Published: 15 May 2009

There are two basic styles of Forex Trading. Short term and long term. Essentially, short term trading is done on an intraday basis, where positions are opened and closed within the same day. Long term trading is done on a multiple day basis, where one position can last weeks or months, maybe longer. Within each of those, there are different time frames. For example, very short term traders might be looking at 1 minute charts, and entering and exiting trades minute by minute. Typically closing out trades within a few minutes of their open. It is not very likely that these people will gain more than a few pips per trade for their efforts. But they make up for it by making as many trades as possible during any given day. This is known as Scalping in Forex Trading.Day traders are short term traders. They get in and out of trades, making just a few pips per trade. But to be very profitable, they need to use extremely high leverage and/or make a ton of trades every day.

Most scalping in Forex trading is done based on range trading. A ranging market means there is no significant price volatility. In any given period of time, the price will fluctuate 10 to 20 pips, maybe more, between two price levels for the day. If you watch a chart for 20 minutes, you will see that it will normally move up and down. This is where scalping comes in. A Scalper will try and make at least 2 to 5 pips per trade.

The best time for scalping is when the market is consolidating and ranging. This typically occurs between big market gaps, such as after the close of the US market and before the open of the European markets. During these times, Forex markets tend to range for hours without much movement.

Personally, I don’t like scalping in Forex trading. It consumes a huge amount of time to make decent profits, and it costs more to trade. While brokers don’t “technically” have trading fees, they do get paid on something called the spread. So if a broker is giving me a price on a pair with a 3 point spread, then the trade needs to move in my direction at least 3 pips simply for me to brake even. If I want to profit, I need to make more than that 3 pips. Some pairs (especially during fast moving markets) have spreads as high as 20 pips, or more.

In order to be successful while scalping in Forex trading, you need a thorough understanding of technical analysis, and the time to apply it. You should have an idea of how to determine over or under bought pairs, support and resistance levels, trend lines, channels, and other indicators before entering into a trade.

Source: Forex Mastery

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This entry was posted in Forex Trading and tagged Forex Scalping, Forex Traders, Forex Trading, Fx, Fx Trader. Bookmark the permalink. Both comments and trackbacks are currently closed.
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