The term scalping usually brings a negative image to most people s minds. Often we think of a person outside a sold out football stadium selling tickets at a giant price to any poor soul that will pay it. Forex scalping is slightly different.
Forex scalping can be a good method of growing a managed Forex account quickly, but should not be looked at as the holy grail of trading. Most brokers do not support scalping, and a consistently profitable Forex scalping strategy can be very difficult to engineer.
Forex scalping is considered by pure scalpers as one of the most profitable techniques in forex trading. To perform forex scalping, you will only have to open and close your trading positions for a very short period of time. Let s take a look at some of the basics to see how it works.
More conservative investors examine long term trends to make their decisions about where to place their money. They will look at various factors affecting a country s economy such as employment rate, gross domestic production rates, inflation and several other items. In addition they will keep an eye on the news events to see how the potential country is doing.
All of this is an effort to see how the currencies will be effected over the next several weeks and maybe months. Forex scalping is much more short term. As in minutes, not days. Various trading charts are used that can help predict at what price to buy and then conversely sell in a matter of minutes.
So how can the money be made in such a short time? In a nutshell, the money is made by greatly increasing the trading risk. The higher risk results in a much higher per pip dollar value than the normal type of transaction.
Just for an example, a typical transaction may take 5 hours to complete resulting in a $1.25 pip value for 200 pips. This would be a profit of $250. A Forex scalping transaction cold likely yield a $50 pip value for 5 pips, giving the same profit, $250, in a matter of 5 minutes.
Because of the potential risk, a strategy that involves very strict loss limits will usually be in place. These limits may actually prevent the scalper from making the trade since the limits will force them out of the transaction early if large losses are racked up.
This leads us to our next point about one of the main characteristics of this style of trading. Because of the small trade times in use, Forex scalping leans more to the chart analysis rather than the fundamental basics of foreign currency exchange.
For this very reason, a system that is driven by software can be used to execute the transactions based on pre determined loss limits. This allows the trader to set the trade and move on without the need to watch the market.
Just like any other investment it is easy to see that this particular style is not intended for everyone, since tolerance for risks differs from person to person. But for those individuals that can handle a calculated high risk decision, Forex scalping can be quite lucrative.
Author Resource:-
With more than 5 years experiences as a full time trader, Joshua Tree shares his knowledge about forex using videos, an exciting new learning platform to share with others about proven forex trading concepts. To gain his 4 FREE Videos, please go to http://www.forexpipz.com/free-videos.htm
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