It’s no secret that currency exchange has been going on ever since ancient times. Because the craft has such a long history, change is inevitable. Thus, old techniques are phased out by innovation all the time. One strategy that used to be extremely popular in the golden days of trading is that of scalping. Unfortunately, many people steer clear of it nowadays.
However, scalping is still very much feasible, in spite of the obstacles the modern electronic forex floor lays before it. As long as participants use the available technical indicators wisely, profits can still be made from currency trading in amounts of time as short as fifteen minutes, sometimes even less.
But even when considering its obvious advantages, scalping for beginners is a challenging strategy to master because its fast-paced nature tends to leave most newcomers in a state of dazed confusion. Nevertheless, once you’ve got the basics all figured out, you will surely master this particular approach and be able to make a handsome profit off of it over time.
What Is Forex Scalping?
There are quite a few ways to make a profit on the foreign exchange market. Out of all of them, scalping is perhaps the fastest one. It consists of a fast-paced trading style that allows those who engage in it to gain quick money from small price changes among various currencies. This usually happens right after a stock has become profitable.
According to Investopedia, scalpers are a fast-fingered crowd that makes use of the ticker tape which is constantly moving during a market day. In the past, they used bid and ask screens to locate the adequate buying and selling signals by pinpointing supply and demand imbalances. However, this has become increasingly difficult in today’s electronic market.
Nevertheless, scalping is still a popular approach to forex nowadays. Those who practice it make use of three technical indicators in order to gather the necessary data for determining when to profit off of the aforementioned small market movements. When real-time data becomes futile due to lagging and other issues, knowing the prices is indispensable.
Because the strategy is based on minor fluctuations, multiple trades need to be attempted in one day. This is the only way to make a considerable profit. After all, increasing winner number does sacrifice the size of the win, but they all add up in the end. Thus, you could think of scalping as your own FX piggybank.
The Essentials of Scalping.
Scalping relies on shorter times frames, such as M1, M5 or M15. This basically means that you will spend between 1 and 15 minutes on the market. For this reason, having a thorough entry and exit strategy is essential. Here are some of the most aspects to master and apply to your tactic so that you can practice it successfully.
The first thing you need to use is the moving average. It is a standard concept in the field of FX trading, and it consists of a value derived from successive segments represented by price movements. Its purpose is to filter out of the noise of small and inconsistent fluctuations. By using it to determine a trend’s strongest moments, you can establish when to enter a trade.
Once you’re in there, taking profits or cutting loses should be your main concern. Although the market is unpredictable due to its very nature, it is way easier to understand and foresee movements for periods of time as short as those involved in scalping. The most suitable way to time your exits is by watching how the band interacts with a price.
Band penetrations usually predict trend reversal, or at least a slowing down of sorts. When that happens, it’s time to go and collect your wins. On top of that, if price thrusts fail to reach the band altogether, you need to exit the trade as early as possible and cut your losses. You shouldn’t expect to make a profit with every single movement.
Last, but certainly not least, working with multiple charts simultaneously is a sure way to keep track of the background conditions that impact your trading actions. Because real-time data is no longer reliable in the present electronic foreign exchange market, you will need to compare support and resistance levels manually in order to succeed.
Today’s foreign exchange market is ripe with opportunities for success as long as you have the right strategy going in. For those who are interested in trading, the offer is quite varied on this front. Depending on whether you want to engage for the long term or for shorter periods at a time, you need to design your technique accordingly.
Short-term traders can benefit tremendously from scalping. The fast-paced approach relies on profiting off of small movements on the market, which is entirely possible once you’ve got the best entry and exit points figured out. The only thing that’s left to do is to leave the inaccuracies real-time data behind and manually set up the right technical indicators.