Taking a position for perhaps no more than a few seconds is only going to work with high leverage. There may be little risk that a major global event is going to reverse the trend you’re betting on but the return is still going to be small. You might gain one or two pips but you need that to translate into sufficient cash to justify the time and the risk, especially if you are still learning forex and riding a steep learning curve.
If your trade is that highly leveraged then it is well worth applying a very tight stop loss, that will prevent a bad run of positions taking out your original stake plus leaving you to settle the much larger borrowed part. Even if you don’t lose the lot it’s still easy for one loss to take the benefit from the day.
Scalpers really do need to be committed and prepared to concentrate on the signals from price movements coming through, and to make decisions quickly. Better to pull out if the trend is level, rather than risk a sudden reversal.
Most scalpers have very clear risk-reward profiles and set fairly cautious profit targets for each trade, and rely on multiple trades of just a portion of their funds to meet those targets.
As to strategies, the suggestion that forex traders dealing in short time frames, especially the very short frames of intra-day traders, should be solely using technical approaches has been challenged as the popularity of scalping has increased. The fundamentals still apply and actually put the larger market players at a strong disadvantage when executing trades.
For many it is the transparency of currency markets that makes trading attractive. It is hard for a single nation (or many nations in the case of the Euro) to fabricate or even airbrush bad news in the way that companies can use a mixture of interesting accounting practices and excellent PR to try and live another day. This tends to mean less rapid or severe fluctuation and also means that, with 24 hour trading, their performance is not linked to a few key events but a flow of overlapping events.
However, just because currency trading is available 24 hours a day, doesn’t necessarily mean that all of those hours are equally good for the scalper. So 3-4pm (BST, 10 EST) is good because three important markets, (New York, London and Frankfurt) are all open with lots of activity and micro-trends developing that the scalper interpret. Lunchtime can be a bit dull as the European institutions wait for the opening of New York at 8 EST, and between 10-12 BST most of the major banks in the world are closed.
There’s a lot to consider if scalping is your chosen way of playing the currency markets, and taking advantage of a virtual fx demo will probably be the best investment of your time that you could make to learn the basics of forex trading.
I am a copywriter and poet with a bachelor’s degree in English Language and Creative Writing. I have worked in various marketing & creative roles since 2001. My aim is to publish at least one novel before I die – so far I have had 2 poems published internationally in print as well as some online. In my professional capacity I currently work for an advertising agency in London.
Richard Newman