If you have ever wanted to become a Forex trading scalper there are some things you should know before starting down this path of Forex trading. Forex scalping is the process of taking advantage of some of the many small price movements which a currency pair makes during the trading day.
For all practical purposes a Forex trading scalper is a day trader because scalpers open and close their positions within one trading day. The lure of scalping is obvious. It is one way that a trader can get virtually instant gratification because the time between entering a trade and exiting a trade is typically very short. This is because the scalper is not looking for big or medium-sized profits. Scalpers are looking for several pips of profit…3-10 and sometime more.
To make money scalpers look to trade multiple contracts and have each contract bring in a tiny profit. So if a scalper is trading 10 standard contracts and makes a profit of 10 pips per contract the scalper's profit is:
10 contracts x 10 pips per contract x $10 per pip = $1,000
If we look at scapling from a statisitical standpoint we can see that on the surface it makes good sense. In a typical trading day any given currency pair will have many 5 pip moves as compared to larger, say, 100 pip moves. Clearly the opportunities for profit are there so you may think to yourself that scalping is easy. I wouldn't say that scalping is easy. One reason is that you have to be very quick on your feet to scalp, but you can always automate the process as more and more scalpers do. Another challenge with scalping is risk control. When you aim for small profit targets you have to be careful that one loss doesn't wipe out too many of your small profits. Often times new Forex traders will make the grave error of having a maladjusted risk-reward ratio. I have seen certain traders actually espousing the benefits of risking 600 pips to make 20 pips. To me that just seems ridiculous. If your trading system's timing is so poor that you have risk 30 times your potential reward then you need a new trading system!
If you do decide to become a Forex trading scalper make sure you take it slowly to see if it is a good fit for you. Never let the excitement of very short-term trading be a substitute for profits.
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