What exactly is scalping?
In Forex trading, there is often a technique or strategy that many people use, which basically involves buying at the ‘bid’ price and selling at the ‘ask’ price, even when the bid-ask spread is really low. Multiple such trades where the selling happens at a few cents lower or higher help people to gain small amounts of profit. And together these profits accumulate in the end to a big amount. This is what is referred to as ‘scalping’.
Factors Affecting Scalping
Scalping is not something that can be carried out easily. Factors such as the volatility and the liquidity of the market, the trader’s risk management strategy, and the time frame that one has to trade, affect the process of scalping. A good scalper must know how to use all these factors to his/ her advantage in order to gain good profits.
Principles In Scalping
One of the most important principles in scalping is that the smaller moves in the prices are easier to obtain as compared to the bigger moves. The smaller moves is what the scalpers mainly look out for.
Secondly, there is lower exposure, because of the relatively small period of time that the scalpers have to make their trades, which means that there is automatically lower risk.
Thirdly, scalping works best for small capital traders who move smaller volumes more often or more number of times in order to attain a big profit in the end. This is different from large capital traders who basically move larger volumes in one go.
Is scalping profitable?
Scalping can definitely help the best forex broker and trader in gaining a good amount of profit, as long as he/ she sticks to the strategy they plan, and do not get carried away by emotions of greed and fear. Greed makes people trade more than necessary, without even realizing that they are running into losses. Fear on the other hand stops people from making the right moves at the right times, because they feel that the situation is too risky, even when it’s not.
The key to scalping is to make a strategy and stick to it. Planning of entry and exit times is really important, so that good opportunities are not missed, and the bad ones do not hinder the plan.
Can new people try out scalping?
The answer can be yes or no, depending on the level of understanding a person has of the market. If the person has been following the market for quite some time and is only new to the actual trading act, then maybe he/she won’t make the kind of mistakes a person new to the market itself would.
Ideally, it is good if people first try out other simple trading strategies before moving on to this one. Scalping requires some amount of patience and careful planning, which only comes with practice. So being friendly with the market scenario and understanding spreads becomes important. Plus, the person should realize that this is serious planning for money, and not a form of easy gambling done on the basis of your gut feeling.