The foreign exchange market revolves around time frames. They are what defines the nature of an investment, as well as its potential success or demise. When a trade passes the one-hour mark, it is considered long-term. Anything below that belongs to the short-term category, and scalping is one of them.
Just like any other strategy, it has its intricacies and particularities. And of course, understanding the pulse of the market is essential for using it to your advantage. Here is everything that you need to keep in mind for your next scalping trade.
Profiting From Forex Scalping
Making money by scalping the foreign exchange market is possible with the right methodology. If you want to bring in revenue from a short-term trading strategy, you should first read more about scalping for beginners. Understanding how the process works and what its prerequisites are is an important step towards success.
The usual trade in this category lasts anywhere between one and fifteen minutes. Anything longer than that typically veers into a totally different territory. Scalpers gather profits by acting promptly on small price movements regarding various stocks. Therefore, a strict entry and exit strategy is indispensable for this type of trade.
Discipline is also crucial. Although spending fifteen minutes on a trade sounds easy, the temptation to ride it out for a while longer will always appear. Thus, scalpers need to control their impulses. What is more, coming up with the appropriate one has become increasingly difficult in the modern age because the market is very different now than it was 10 years ago.
The progress of technology is essentially what changed the face of scalping strategies, and forex trading in general. Because the process is entirely electronic now, lagging and other inaccuracies frequently occur, making real-time data hard to use and even unreliable at times. For this reason, a deep understanding of the market is vital.
What You Need To Know
All in all, scalping is the fastest way to make money on the foreign exchange market. However, this doesn’t automatically mean that it’s simple and should be taken lightly. In fact, approaching it correctly can be quite the challenge. To engage in profitable trades, you need to keep a few fundamentals in mind.
Focus On Costs
If you want your profits to be considerable, you will have to engage in hundreds of short-term trades per day. This implies frequent buying and selling, which can lead to a lot of additional costs in commissions. Needless to say, this can diminish your gains, which is undesirable when you’re playing for big wins.
For this reason, your choice of broker can make all the difference in the world. Besides access to the market, the right one will also provide competitive commission rates. What is more, keep in mind that some brokers do not allow scalping, so if you want to apply this strategy you have to seek out one that does.
The most important thing to remember when FX scalping is that when you enter and exit a trade is essential. Timing is what matters the most for maximizing profits with this particular strategy. In order to choose right moments, you need to understand the pulse of the market. Spotting trends and momentum is thus indispensable for the novice scalper.
Because the actual trade lasts for such a small amount of time, knowing when to get out swiftly so that you repeat a pattern makes all the difference in the world. Some scalpers also trade with the countertrend, but as a beginner, you’re better off avoiding that. Stick to short-term trend trading and you will surely score some wins.
Analyze The Market
Any seasoned trader will tell you that the most successful way to make adequate predictions is by performing thorough market analysis. There are three main types that most investors use, and they are sentiment analysis, fundamental analysis, and technical analysis. The latter is by far the most suitable one for scalping.
Because today’s markets are dominated by dark pools and high-frequency trading, the context surrounding stocks is vital. Technical analysis looks at historical data and trading volumes over time, as well as trends in the industry, in order to establish that and aid participants get a feel for how a certain asset performs.
In order to profit from forex scalping, you will have to pay attention to commission costs. Due to the high frequency of the trades, you might end up spending too much on these, which is undesirable. Furthermore, you need to analyze the market and its technical indicators to determine what the best moments for entry and exit are.
Once you’ve got all these aspects figured out, it’s time to try out scalping. Just remember not to give into the temptation of spending too much time with the trade and having it transition into long-term territory. Discipline is the most important key to success.