Forex Scalping – The Benefits And Risks Involved
Forex Scalping is very popular among traders because of the quick profits that can be made. There are millions of traders who do only scalping. That is because…
1. Scalping Trades do not last long, so you can make a quick profit and then safely bank it.
2. You have the potential of placing multiple trades a day. Since you are targeting only a few pips per trade, there are multiple times you can place a trade.. Also, you can use the scalping techniques on multiple currency pairs.
There are some specialized scalping systems and software programs available, like Delphi Scalper and Forex Scalping Blueprint which make it even easier to make money. Still, you have to keep in mind that scalping can be risky also. Here it is why…
Scalping is about making a small profit on each trade but, as per good trading principles, it requires some realistic stop loss value to protect against the scenario of a trade going in the opposite direction. So, the risk per trade is high, but the reward is low.
Infact, there are certain trading systems that use the money management principle of only 10 pip profit for every 50 pips risked. So, imagine you have 4 profitable trades and 1 trade with a loss, which is an 80% success rate, still you would end up losing 10 pips after 5 such trades. Such systems should always be avoided.
At the same time, you also need to consider your own trading psychology. Are you mentally ready for scalping? Do you like to place trades immediately or are you the kind of person who likes to take time to understand the market and also requires some time to make a trade? How fast is your trading station in accepting trades? This is important since if the broker takes even 10-15 second to place a trade, the trade opportunity in some cases may slip away.
This brings up the next point – that any scalping system or software should be highly accurate and should give clear cut signals about when to open a trade and when to close a trade, since you do not have chance to second guess in scalping. If you are delayed in opening the trade by even 30 seconds, you had better pass up on that scalping opportunity.
Also, the scalping software or system should have sound money management principles. What is the point of using a system that requires a 50 pip stop loss for a 10 pip profit? Such money management principles cause significant losses to your account balance over a period of time.
The final point to be considered when selecting a scalping software or system is that it should be very easy to understand and use, and there should be a good level of customer support available to assist in case of any questions. This is extremely necessary since if the forex trader is not confident about the trading system or software, the probability of trade ending in a loss is high.
Author: arfandia
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