Back in the day, the foreign exchange market looked a lot different. A lot of traders relied on scalping because determining imbalances between supply and demand was easy. However, this all changed with the flash crash of 2010 and the subsequent transition of the floor to a fully electronic platform.
This made scalping a lot harder because real-time data was now subject to inaccuracies such as lagging, as well as other imperfections that came with the new technology. Still, with the right approach, those who want to try this method on for size are perfectly able to. All that is necessary is a deep understanding of various technicalities.
As described in this Mtrading article, the average scalping trade lasts anywhere between one minute and fifteen. Due to their short-lived nature, investors engage in hundreds of them per day so that profit margins are considerable when they draw the line at the end of the day. If done right, it is hugely rewarding. Here is what you need to know about it.
The Basics of Forex Scalping
Due to the versatility involved in trading currencies on the market floor, you can approach the matter in many ways. While some occur in the long run, there are also faster, short-term options. In order to succeed in the field of forex, you need to know every trick of the trade. Naturally, scalping is one of them, and it makes winning money quick and easy.
Mastering the intricacies of scalping is a challenge, but once you figure it out, you will be able to employ the ideal strategy that will bring in profits from all over the place. The following are some of the essential concepts involved. By getting the hang of them beforehand, you are bound to bring in some gains eventually.
1. Order Execution
Perhaps the most important aspect that novice scalpers need to make a mental note of is that of prompt and efficient order execution. Because profit margins are so small in every single trade, you need to be accurate and precise, much like a Swiss clock. Timing your exit is everything when you’re trading short-term.
If your order is delayed or poorly executed, it can all lead to a loss so major that all your previous gains are simply wiped out. Therefore, making use of trading software to determine what the best moments for applying your strategies is an essential factor in your success. Mastering this will be a challenge, but once it happens, making money will be quick and easy.
2. Technical Analysis
The world of foreign exchange relies heavily on various systems on analysis. There are various approaches to it, and each one delivers different results that can be used to assess the success rate of a trade and determine whether or not an investment is feasible. For scalpers, there’s nothing more relevant than technical analysis.
This methodology is a way to assess a stock depending on the context surrounding it. Historical data and trading volumes over time come into play, as do identifiable trends in the industry. When used in combination with a moving average, traders can determine what the right timing is without interference from electronic lagging of real-time info.
3. Disciplined Approach
Finally, what you need to understand as a novice scalper above all else, is that having discipline is vital. Holding a position for a short time only is more difficult than it seems. Once you enter a trade, the temptation to ride it out and see where it goes becomes higher and higher. For this reason, many newbies fall into that very trap and end up losing.
Therefore, you need to educate yourself so that you display the appropriate amount of control and exit trades after no more than 15 minutes. Of course, if your instincts sometimes tell you to stay, it’s perfectly fine to listen to them every once in a while. After all, the stock market is a matter of luck, not an exact science.
Final Thoughts
Scalping used to be a popular trade strategy back in the day because the market conditions made it a lot easier to pursue. Still, it remains the fastest way to make a profit in forex. If you pay attention to order execution and master technical analysis, it can still be possible. Just remember to remain disciplined and in control.
After all, you are playing with small profit margins. When you engage in hundreds of trades daily, they eventually add up to a greater number. But this also means that any loss can be dramatic. Thus, practice caution, but don’t be afraid to take swift decisions either. If you’re in it to win it, you will need to have your best interests in mind.
