In fact, there are many ways to play forex, but to choose the right trading style for you, traders need to spend a lot of time researching and experiencing.
Table of Contents
- 1 What is Scalping?
- 2 Why Trade Scalping?
- 3 Pros and cons of scalping
- 4 Difference between Scalping and Day Trading
- 5 Conditions to become a scalper?
- 6 Some effective scalp trading strategies
- 7 Important notes when trading scalping
- 8 Conclude
What is Scalping?
Scalping is a term used to refer to the activity of “surfing”, referring to holding a position for a few seconds or minutes. More specifically, this is a short-term and regular trading strategy that opens and closes many trades during the day to make small profits.
Scalping is one of the popular trading styles with new traders. Traders who trade in this style are called scalpers . The main goal of scalpers is to “surf” during the busiest hours, profit from a few pips to a few tens of pips and get out of the market in no time.
Usually, they take profits of 5-10 pips from each trade and repeat this process several times a day. Many small profitable trades put together will give traders a relatively large profit.
Why Trade Scalping?
After understanding the concept of scalping, surely many investors will ask the question: “Among the countless trading methods on the market, why should you choose the scalping style? Is surfing trading a strategy for you?”. If you are wondering either of the above two questions, the following content is the answer for you.
– Firstly, one of the main reasons why traders choose scalping is because they see the advantage of short-term trading with small market fluctuations that will bring high profits and faster than trading. long term translation.
In addition, scalping can help scalpers to summarize huge profits according to the trend of “small accumulation to greatness” if used correctly.
– Finally, with scalping, investors have a lot of opportunities to enter orders to find profits in a day, both increasing their income and forging forex trading skills.
By now you probably have a full explanation of why scalping should be traded. However, even if you are interested in this style, don’t rush to “plunge” into Scalping without knowing about it because of the big profits in the immediate future. Because scalping requires you to catch the news in time, read charts and like to take risks to close orders decisively. Therefore, always be cautious before making any decisions when engaging in financial investments.
Pros and cons of scalping
Any strategy has two sides, along with advantages, scalping also has some notable limitations. What are the pros and cons? Let’s find out more through the article below!
Advantages of scalping:
This is the first advantage that every trader probably realizes right away. The main purpose of the scalper is to profit from the very small differences of the market, the hold time only lasts within a few minutes. Therefore, the results of the transaction, whether profit or loss, are known immediately after, no need to wait for the next days. In line with the motto of some investors is “hit fast, win fast.
Take advantage of many trading opportunities
Scalping trading gives you a lot of opportunities to make a profit because it is only traded on very timeframes like M1 or M5. A scalper can place dozens of orders a day is obvious, even up to hundreds of trades for traders who play “impromptu” – when the price goes up, sell and when the price drops too low, rush to buy.
Avoid psychological influence
The advantage for scalpers in this case is that most positions are opened and closed immediately after, so they don’t need to look at the chart to know how the price is running. Thereby limiting the psychology when the price fluctuates.
Not much affected by the news
When trading scalping, the time to hold an order is short and the time to enter an order is usually when the market does not have a lot of strong news, so traders will not be affected when the market is volatile due to unexpected news.
Disadvantages of scalping:
If only stating the advantages without mentioning the disadvantages of scalping, it is extremely flawed. The disadvantages below will help you take a closer look if you want to become a scalper.
Large transaction costs
The essence of scalping is to trade for a short time, at a time when the market is not very volatile. Therefore, if you want to earn a large profit, it is imperative that traders place many trading orders, which increases the spread (this is the main source of income of the broker). So make sure you have a clear understanding of the costs before trading forex just as you must understand the rules of the game before entering the war.
High risk of loss if stop loss is not set
Scalpers who enter orders with large volume often make the mistake of “earning firewood in 3 years, burning 1 hour”. The main reason is not stopping loss because you think the trade is too short, so placing a stop loss is not necessary.
Emphasizing again, no matter what strategy or style you trade forex, never forget to set a stop loss if you don’t want to burn your account or lose your pocket.
Difference between Scalping and Day Trading
Scalping and day trading are both short-term trading styles, at first glance you will think these two methods are similar but are actually very different. When scalpers choose to profit by performing scalping techniques, day traders simply use a day trading system. Here are some key differences:
Conditions to become a scalper?
As stated above, scalping is not for all traders. So what characteristics should investors have to be able to trade with scalping?
Monitor the market regularly
Since this is a method of trading that is both fast and small, it is imperative that you monitor the market regularly so as not to miss an opportunity to make a profit. Scalpers must be invested investors who follow the price chart during the entire opening of the trading session. Moreover, focusing on observing the price movement is also a condition that cannot be ignored because the profit per trade received by the scalper is very small (not to mention the spread and commission fees).
Likes to take risks, take risks
Surf trading usually takes place in a very short time and does not use market analysis so the risk is extremely high. If you are not a risk taker and can take risks then claping is not for you.
Flexible, passionate about trading
On the other hand, scalping is suitable for investors who are flexible and passionate about forex trading. Because the transaction time is very fast, if you are not flexible, you will not know when is a good opportunity to enter and close an order.
Know how to choose a reputable exchange
Besides, in order to trade scalp proficiently, you also need to choose a reputable and quality broker so as not to incur large transaction costs. Currently, on all exchanges, this spread fee is public, so you can go directly to the floor to find out or you can talk to the floor’s consultant.
Not for new and inexperienced traders
New traders entering the market should not trade according to scalp because they are not experienced enough and acumen to judge the appropriate entry time as well as not “mature” to be able to face the risk of losing everything. asset. However, if you still want to trade this method, you can practice using a demo account to increase your own experience before entering the real battle.
Some effective scalp trading strategies
The use of scalp trading style in combination with other indicators is the first choice, helping traders increase the success rate up to nearly 90%. From there, profits also increase exponentially if you apply them correctly and have a strict closing strategy.
Using moving averages
The Moving Average is a technical analysis indicator that is used to reduce price volatility noise and real market trend reversals.
Using the MA indicator when scalping in forex makes it easy to spot price trends by eliminating random price fluctuations. Thereby, you can exploit market fluctuations well, predict the direction and come up with the most reasonable trading strategy.
Using the RSI
Like the MA, the RSI is a commonly used relative strength indicator for candlestick chart analysis. It is an oscillator from 0 to 100 and helps to indicate the most recent level of price movement in order to determine the overbought and oversold zones of the currency pair. Combining these indicators as a catalyst makes the scalping strategy in forex more effective.
Using the parabolic SAR . indicator
Parabolic SAR will help investors identify price trends and parabolic reversal points. From there, investors will know when the price trend will change to close the order.
Parabolic SAR, if used in short-term trading, will measure short-term momentum and then find the most appropriate stop loss point.
Important notes when trading scalping
As you know, Scalping transactions take place in a very fast time. Therefore, in order to avoid too much risk and loss, scalpers should note some of the following characteristics:
First, choose a reputable broker. Because the forex market is not yet recognized in Vietnam, it is not possible to guarantee your rights in case of fraud. Moreover, the spread fee and the deposit amount at the broker are also very important because it directly affects your profit. Therefore, choosing a reputable and suitable exchange is the first successful step on a trader’s journey to discover the market.
Second, liquidity is also an equally important factor. To become a wise investor, you should only trade forex pairs with high liquidity to have a high chance of making a profit.
Third, ensure a stable internet connection, this is very obvious but many traders often do not pay attention. Surf trading requires fast and accurate, so even a small connection failure can cost you time and opportunity to enter. From there, your psychology also overlaps, affecting the trading results all day.
Fourth, in order to trade multiple times a day, you need to define a chart time frame in advance, such as a one-minute, two-minute or five-minute chart because scalping doesn’t allow you to spend time doing in-depth research. execute the order.
Finally, you should not float profit ( take profit ) and stop loss ( stop loss ) . Especially make sure to always put a stop loss in every trade.
Thus, through reading the article, you must have understood what scalping trading style is , and also partly answered the question of whether scalping is right for you. However, no matter which style you choose, you should keep in mind the following advice “look no further, focus on price as it is the most accurate reflection of what is happening”.