When it comes to trading foreign currencies in the market, one of the most effective methods a trader can use is scalping. In this method, traders earn money through buying and selling currencies where they hold a position for a very short time before closing it to earn profit. Traders are expected to follow this method throughout the trading session to succeed.
When utilizing this strategy in your end, here are some tips to remember:
1. Use chart and other analysis tools
In scalping, understanding trends and how the market moves is your key to eventual success. Depending on the platform you are using, whether it’s Engine Forex or any other Forex platform, you will be encountering various trend lines that show which currency pairs are most highly in demand and which ones are generally sloping downwards.
In this step, you will need to identify the support and resistance areas in order to recognize where your entry and exit points may be as well as other factors. These factors may include:
- Recurring trade patterns
- Foreign exchange trends
- Current events and relationships among countries
- Supply and demand
While most of these can easily be seen in charts, it helps to find out more about how these factors affect Forex values to be an effective scalper. After learning how to use charts and analysis tools, you can start looking for platforms to use and currencies to trade.
2. Start small
The difficulty of Forex trading is debatable, which is why it’s important to start small and minimize the risk. With enough experience and practice, you can then do bigger and bolder trades; however, as a beginner, you shouldn’t be afraid to do baby steps.
Forex Scalping is not about making calculated bets in order to gain a lot of profit. Instead, it involves making effective decisions where one can earn a small profit and increase it over time.
In this case, the best way for new traders to start small is to focus on trades that are not beyond their risk margins. This provides them with enough space to retract their order if they think their position isn’t profitable. Set a limit on the investment you’re willing to use.
3. Trade only the most liquid pairs
Currency pair is basically the quoted price of two currencies against each other. The first quote is considered to be the base currency, while the second is the quote currency. In scalping, always consider the short term gains so it’s important that you know which pairing can potentially rake in more profit in a short amount of time.
There are certain currency pairs that are more in-demand than others. In the Foreign exchange market, these include:
- EUR/USD or Euro to United States Dollars
- USD/JPY or United States Dollars to Japanese Yen
- GBP/USD or Great Britain Pound to United States Dollars
- AUD/USD or Australian Dollars to United States Dollars
- USD/CHF or United States Dollars to Swiss Franc
- USD/CAD or United States Dollars to Canadian Dollars
- EUR/JPY or Euro to Japanese Yen
- EUR/GBP or Euro to Great Britain Pound
Each of which may vary depending on the region on where you are trading. When scalping, it’s best to focus on the most traded pairs since they are active and tend to include the best bid/ask spreads available. However, to avoid incurring losses, make sure to trade a single currency pair first so you follow your trading positions closely.
4. Trade during the busiest period of the day
In scalping, timing is everything and this includes the time period on when you should start your trading session. Depending on where you are residing, the most liquid time for trading usually happen when sessions tend to overlap which can be from 2:00 am to 4:00 am Eastern Time as well as 8:00 am to 12:00 nn Eastern Time.
While it’s certainly helpful to know which time is best in trading, scalpers can still make money during choppy or directionless trading periods of the day provided that they have the quick wit to get things done.
5. Practice risk management
Every trading strategy requires risk management techniques that traders should use if ever they believe they are in the wrong place at the wrong time. Some examples of risk management techniques include:
- Setting a stop placement– this involves identifying your entry and exit points in the chart. To do this, count the number of bars between the two points and execute the order when it reach your stop point.
- Risk by percentages – most traders utilize the 1% rule which is to never risk more than 1% of their capital when proposing a trade. This prevents any worse case scenarios from happening like a sudden loss.
6. Practice on a demo account
A demo account is more or less a simulation feature that comes with your trading platform. This is especially handy for beginners who have yet to get used to trading live. Demo accounts are also beneficial for strategy makers since they provide an opportunities for scalpers to get a feel of the market, practice executing quick trades, and improve their chart analyzing skills.
If you’re looking for a trading software, choose one that has a demo account so you can gain a little amount of experience without losing any money.
7. Keep calm
Scalping is a trading method that requires focus, discipline, and determination. Considering that certain markets can be quite volatile and subject to unexpected change, there is a tendency for traders to start executing orders based on their feelings rather than by looking at the situation objectively.
In order to succeed in trading Forex, one must practice to keep a cool head and remain calm at all times.
When done properly, scalping can be a great way to earn a consistent amount of profit for the day. It’s a low risk strategy that involves quick thinking and strategy. However, in order for it to be effective, traders must learn how to stay focused and disciplined throughout the trading sessions to avoid incurring any risks by practicing and staying calm.