Understanding How Scalping Works in Forex Trading

Primarily there are two trading styles in forex trading: Short term and long term. Short term trading is done when positions are opened and closed on an intraday basis. Long term trading positions may span a few weeks or a few months.

Most of the day traders are short term traders. Day traders love scalping. A position is opened and closed within minutes making a few pips per trade.

Scalping is based on the fact that most of the time the market is ranging. Ranging means there is no significant price volatility. A scalper tries to make 2-5 pips per trade.

When the market is consolidating and ranging best suits the scalpers. For example between the close of the US market and the open of the European market, forex markets tend to be ranging for hours. This is the best time for scalpers.

But scalpers have to make more pips per trade than the pip spread offered by brokers in order to break even. For example if the broker is giving a 4 pips spread to you than you will have to make more than 4 pips per trade to start making profits. Dont forget the spread is your cost of trading.

In order to become a successful scalper, you need to understand technical analysis well. You should have clear idea of over/under brought, support and resistance zones, trendlines, trading channels etc.

Most of the forex brokers dont like scalpers. Many will try to ban you if you are found scalping, since the brokers are most of the time trading against you, a successful scalper can take profits away from the brokers.

In order to make profit with scalping, you need to scalp many times in a day. At the end of the day, the pips made should be more than the pips lost.

Since scalpers are looking for capitalizing on very small gains like a few pips per trade, the profits obtained per trade are small. So scalping requires you to use high leverage.

Leverage can be dangerous. Leverage will work as long as you are beating the markets. But it will wipe you out if you ever get caught on the wrong side of the market. Understand leverage before you use it.

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