In this article we are going to look at one specific trading strategy that some forex traders use to make profit: Scalping. Scalping is the art of holding positions for a very short relative time in the market in order to make many small gains over the course of a day. But before we get into the specifics of scalping, let us take a look at some of the fundamentals behind all technical analysis fx trading.
The forex market is a highly liquid market, liquid in this regard meaning there is a high number of trades being carried out every day. In fact there are more trades being done n the forex market, both in value and number, than in the stock market and bond market combined. That should tell you something about the enormous size and volatility of the forex market.
Of course this gives traders the perfect opportunity to take home profit. A busy market is always better than a slow market, no matter if the price is going up or down, there is always profit to be made. Generally there are two main schools of forex trading: Fundamental Analysis and Technical Analysis. In this article we will look at the part of technical analysis that is called ‘scalping’.
Technical analysis is the discipline of trying to predict future price movements by analyzing past prices with mathematical models as well as psychological predictions. It is beyond the scope of this article to teach you about technical analysis in depth, so just consider that technical analysis is about statistics, probability and most of all psychology. It is about watching a forex graph carefully and looking for exactly the right time to get in and execute a trade, and then get out fast once the pips are made (pips are forex terminology for how to measure your trades profitability).
Scalpers use many different tactics to take home their profits and the methods used can seem confusing for a beginner. Some starting points you should get familiar with are ‘candlesticks’, ‘support and resistance’ and ‘bullish and bearish markets’.
Remember that scalpers trade on market sentiment and feelings, not on numbers or news. They interpret the movement of a graph as other traders emotions about the market.
Scalping is usually done using forex signals, which you should also study. Forex signals are technical indicators that look for certain favorable market conditions and then signal for the trader to get in. These are often automatic.
A scalper is the equivalent of playing short game in sports, looking for a steal here and there, an extra yard, accumulating small gains to make up the days profit.
Scalping is a trade form that requires discipline and strong emotional control as scalping is a stressful way of earning a living. If you lack self control you are better of staying away from scalping and look at day trading or position trading.