Irrespective of whether you’re a complete beginner or an experienced trader, you may have come across the term “scalping” when you trade. Scalping basically implies that you trade particular currencies with the help of real-time analysis. The goal here is to accumulate small profits by holding multiple positions for a brief period of time. It’s a very common forex trading technique. scalping for day trading
What is scalping?
Scalping is a trading strategy that is created in a way that one is able to earn profit from the minute price changes. The profits on these trades are typically taken as soon as the trade turns profitable. Trading demands discipline and since the number of trades is so large and the individual gain per trade is small, the traders need to stick to their strategy to avoid loss. Deviating from the system might lead to a damaging loss that nullifies all profitable trades.
Scalpers focus on taking multiple small profits instead of looking for just one winner. They prefer to seize every opportunity to earn profit whenever it strikes. The end goal is to accumulate profit from many small trades instead of counting on only a few big-sized trades to be successful.
Scalping depends on the notion of bringing down exposure risk because the actual time in the market spent on every trade is low. Thus, the risk of your trade being affected by market events is also low. Additionally, it builds on the concept that small moves are not just easy to access but also have higher frequency than larger ones.
Setting up for scalping
If you wish to take up scalp trading, you need to have reliable access to the market makers through a platform which gives you the option to buy or sell rapidly. Typically, there would be a buy as well as a sell button for each currency pair on the platform. Thus, what one needs to do is click on the right button whenever they want to purchase or sell a pair. If the market is liquid enough, these trades may take less than a second.
Picking a Broker
One should always bear in mind that the forex market operates globally and remains highly unregulated. Several governments are trying to address this with attempts to regulate over-the-counter (OTC) forex trading to some extent.
It is your responsibility as a trader to research and learn about the market as well as the broker agreement so you know what you need to cover and what the broker needs to take care of. Pay close attention to the margin needed and how your broker is likely to respond if the position doesn’t move in your favour. Remember that if your position is highly leveraged, it may also mean automatic liquidation of your account. Get all your doubts cleared about the agreement and hold onto the documents. Learn to read in between the lines.
The Broker’s Platform
As a scalper, you should be thorough with the trading platform your broker gives you access to. The platforms offered vary from one broker to another and thus it is a good idea to open a practice account to get the hang of the platform. Given that you wish to practice scalping, you wouldn’t want to make operational errors when it comes to using the platform.
Imagine that you end up clicking on the “Sell” button when your intention was to buy. In rare occurrences, the market may fall and you end up earning a profit but if that does not happen, you’re in for a loss. You’d want to stay away from such costly mistakes in trading.
Market liquidity is of utmost importance to you if you’re a scalper. The forex market typically is traded in pairs like EUR/USD or USD/JPY. On the basis of which pair is being traded, certain sessions may offer higher liquidity than others. Despite the fact that forex markets are open round the clock, there’s a marked difference in the volumes traded. Typically as London opens at around 3 AM EST, there’s greater volume since it is a major forex trading center. New York opens close to 8 AM EST which further increases the trade volume. As a result, when two leading forex centers are trading, the market is extremely liquid and it is also a great time to trade. Other than these, Sydney and Tokyo markets also contribute greatly to the overall trade volume.
Scalpers must make sure that their trades are carried out on the expected levels. Hence, make sure you are fully aware of the terms your broker has offered you as some brokers tend to limit their execution guarantees to times when market movement is slow. There are some brokers who may not offer any execution guarantee at all.
When you place an order at a particular level and it gets executed a few pips away from what you expected, it is known as “slippage.” It is something that a scalper needs to avoid at all costs.
Redundancy refers to the act of safeguarding yourself in catastrophic situations. In trading language, redundancy refers to having the ability to enter and exit a trade in multiple ways. You would certainly need a great internet connection for this. But in the odds that the connection is lost, you need to have a plan B–get a contact number that connects you to the dealing desk. Make sure you can connect with them quickly and no time is lost in verifying your identity. These things become pressing matters once you’re stuck in a situation you desperately want to come out of.
Choosing a Charting Time Frame
To be able to execute trades over and over again, you should have a system that you can follow almost as a default setting. You wouldn’t have the time to carry out an in-depth analysis with trading and thus it becomes necessary to have a system in place that you trust and can follow again and again. To be a scalper, you would also require very short-term charts, like tick charts, tools, or one-or two-minute charts, and probably even a five-minute chart.